The Monetary Policy Committee (Copom) of the Central Bank (BC) defines today (21), in Brasília, the basic interest rate, the Selic. The trend is for another increase, but at a lower level than in the last meetings, when it was raised by 0.5 point. The announcement will be made in the late afternoon.
In a statement after the last meeting in August, the agency said it would raise the rate by 0.25 point at that meeting. of September, given the risks of inflation being above the target in longer terms. The rise in interest rates from central banks in the United States and Europe may also force the BC to raise again.
The collegiate, however, is divided between an increase to 14% per year or maintaining the basic rate at 13.75%, as expected by the financial market. According to Focus bulletin, the Selic is expected to end the year at this level. In addition to the meeting that started yesterday, Copom has two more meetings in 2022, in October and December.
The drop in inflation in the last two months also reinforced the forecast of financial institutions for the maintenance of the Selic. In July, there was deflation of 0.68% and, in August, of 0.36%. With this last result, released by the Brazilian Institute of Geography and Statistics (IBGE), the Broad National Consumer Price Index (IPCA – the country’s official inflation) accumulates a high of 4.39% in the year and 8.73% in 12 months.
The basic interest rate is used in the negotiation of public securities issued by the National Treasury in the Special System of Settlement and Custody (Selic) and serves as a reference for other rates in the economy. It is the Central Bank’s main instrument to keep inflation under control. The BC operates daily through open market operations – buying and selling federal government bonds – to keep the interest rate close to the value defined at the meeting.
When the Copom increases the basic interest rate, the purpose is to contain the heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. Thus, higher rates can also hold back economic activity. By reducing the Selic, the tendency is for credit to become cheaper, with an incentive to production and consumption, reducing inflation control and stimulating economic activity.
However, credit interest rates do not vary in the same proportion as the Selic, which is only a part of the cost of credit. Banks also consider other factors when defining the interest charged to consumers, such as default risk, profit and administrative expenses.
The Copom meets every 45 days. On the first day of the meeting, technical presentations are made on the evolution and prospects of the Brazilian and world economies and the behavior of the financial market. On the second day, members of the Copom, formed by the BC board, analyze the possibilities and define the Selic.
For 2022, the inflation target that should be pursued by the BC, defined by the National Monetary Council, is 3.5%, with a tolerance interval of 1.5 percentage points up or down. That is, the lower bound is 2% and the upper bound is 5%. For 2023 and 2024, the targets are 3.25% and 3%, respectively, with the same tolerance range.
In the last Inflation Report, released at the end of of June by the Central Bank, the monetary authority officially admitted that the inflation target was exceeded in 2022. In the document, the estimate is that the IPCA will reach 8.8% in 2022. The next report, already with the accounting of the latest deflations, will be released next week, the 29th.
The market forecast is for inflation to end the year at 6%, according to the Focus bulletin in yesterday (19). For 12 consecutive weeks, financial institutions have been reducing the forecast.