Market prices end of cycle of interest rate hikes in Brazil; prepare your wallet for this – Money Times

Fixed Income
Prepare your investment portfolio for the end of the Selic rate hike cycle. (Image: Shutterstock)

The publication of the minutes of the Copom (Monetary Policy Committee) this Tuesday (21) gave a great north to market forecasts about the end of the cycle of highs of fees in Brazil. O Money Times consulted several experts, who point to a Selic rate in terminal stage by 13.75% per year.

Anyone who follows the financial market with some frequency knows that currently the basic interest rate is at 13.25% per year, when in the last Super Wednesday (15), the central bank (BC) raised the Selic by 0.5 percentage point.

After almost a week of the decision, economists looked to interpret the signals given by the BC in the Copom minutes. For many banks, analysis houses and brokers the document does not change what a good part of the market already expected.

“Today’s Copom minutes do not change our Selic rate scenario at 13.75% per year, with another 0.5 percentage point increase at the Copom meeting to be held in August. Next, we have a call of keeping interest rates at high levels”, says Débora Nogueirachief economist at Tenax Capital.

Two points in particular called Tenax’s attention in the Copom minutes:

i) recognition of the movement of global economic slowdown; and

ii) the positive surprise with the Brazilian GDP at the beginning of the yearspearheaded by the reopening of the economy and tax incentives, expected to dissolve in the final stretch of 2022.

End of the monetary tightening cycle

O BTG Pactual (BPAC11) also added to the list of market exponents that price the end of the monetary tightening cycle at the Copom meeting in August. At the time, the BC also starts to consider the year 2024 in its projection horizon.

“The Brazilian Central Bank made it clear that a convergence towards the inflation next year would bring a Selic rate much higher and for longer than the reference scenario”, comment the economists Álvaro Frasson, Arthur Mota, Leonardo Paiva and Luiza Paparounisin a report sent to customers.

BTG’s macro & strategy team reinforces that the Brazilian Central Bank was the first to start raising interest rates (of a minimum of 2% per year) and should be the first to end a cycle of monetary tightening, even with central banks in developed countries raising interest rates, as in the case of Federal Reserve (Fed) and the European central bank (ECB).

How to invest in fixed income now?

With the days counted to the end of the Selic rate hikes, many investors wonder if it is time to abandon the fixed income and re-risking the heritage in the variable income in search of better returns.

The answer for those who managed to fish lies in the very tone that Copom’s minutes revealed to the market. But don’t worry, because the Money Times will simplify.

Although the Central Bank should park the Selic rate at 13.75% per year at the August meeting, high interest rates should not be cut in Brazil anytime soon.

BTG itself expects the first cut in the Selic rate to only happen at the end of the second quarter of 2023, that is, a year from now.

In that scenario, the Great Investments indicates two types of fixed income indexes that will do well from now on, paying attention also to the maturity of each security.

Inflation Securities

Fixed-income investments that pay interest above IPCAin addition to protecting the investor’s purchasing power, they guarantee profitability in scenarios of uncertainty in the Brazilian and global economy.

Fixed income analyst recommendation André Fialhoin the case of inflation bonds, is the purchase of products with short maturities (with maturities of up to 3 years) or intermediate maturities (with maturities between 3 and 5 years).

If the investor chooses to lend money to the Brazilian government and wants to receive interest for doing so, the Direct Treasure offers inflation bonds, known on the platform as IPCA+ Treasury.

Post-fixed securities

Maintaining a position in floating rate bonds is also a smart choice since the Selic rate should still reach 13.75% per year and remain at that level for the next 12 months.

Genial sees greater opportunities for gains for investors in bank-issued securities linked to the CDIsuch as cases of CBDs (Bank Deposit Certificates), LCIs (Mortgage Letters of Credit) and LCAs (Agribusiness Letters of Credit).

The brokerage also maintains a preference for floating rate securities with short and intermediate maturities.

The advantage of LCAs and LCIs is that there is no charge for Income tax on what the investor earns.

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O Money Times publishes informative articles of a journalistic nature. This publication does not constitute investment advice..

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