O central bank increased by 0.5 percentage point, the basic interest rate, within the expectations of economists. The big question is what the BC will do in the next meetings (and expectations are for new highs).
In the statement, the entity explicitly mentions a “new adjustment”.
In other words, at the August meeting, we should see a new increase, which may be “of equal or lesser magnitude”, of 50 basis points (bps) or 25 (bps).
In the view of Gustavo Bertotti, chief economist at Mess Investmentsthe 0.5% increase in the Selic was correct and the ideal is to leave the doors open for a new residual increase.
“It may be necessary, depending on the situation, a new increase, perhaps at a lower level, in the range of 0.25%”, he adds. The next Copom meeting is scheduled for August 2nd and 3rd.
Marco Caruso, from Original Bankargues that the new document brings important changes.
On the hawk side – inclined to deliver even higher interest rates – the following stand out:
- the external environment with the consequent increase in risk aversion “especially in emerging countries”;
- fiscal risks, with special inclusion of those arising from “the tax measures in progress”, read PLP 18 which limits the ICMS on some items, a fact that tends to reduce inflation this year, but increase it in 2023;
- mention that uncertainty about their projections “has grown since the last meeting.
“Together it all seems to us to be a document consistent with the end of the cycle at the next meeting and, in market parlance, marginally dovish. As at the end of the cycle, when the monetary authority’s fine-tuning overlaps with analysts’ models and accounts, we prefer to wait for the minutes to refine our scenario. Today, a priori, we expect a terminal Selic of 13.75% per year”, he concludes.
For Alberto Ramos, chief economist for Latin America at Goldman Sachsthere is no doubt that the monetary policy stance is already highly restrictive.
“We are now entering an end-of-cycle fine-tuning stage,” he adds.
Carlos Menezes, manager of Gauss Capital, says that the projection for 2024 below the target indicates that BC should cut interest rates during 2023.
Fabio Guarda, manager of Galapagos Capital, argues that in this scenario of more activity and more inflation than originally expected, the BC is right to indicate the continuity of the cycle by placing a ceiling for the next increases at 0.50pp.
What to expect from Ibovespa on Friday?
Closed to the market next Thursday (16) due to the Corpus Christi holiday, economists who talked to the Money Times said that the Ibovespa does not have a great chance of sudden drops, since the tone of the central bank and elevation were within expectations.
“It was within the consensus. The impact should be small for the markets”, predicts João Savignon, economist at the manager Kínitro.
As for Cristiane Quartaroli, economist at Ourinvest Bankthe market should stick to the BC’s new strategy in which it talks about the convergence of inflation around the target instead of exactly on the target, “which could generate more volatility in the exchange rate”.
“Although the result was as expected, the market may be uncomfortable with this signal from the BC, which combined with the FED result should keep the exchange rate at a high level”, he adds.
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