The Central Bank Monetary Policy Committee (BC) begins on Tuesday (28) the first meeting under the command of the new BC president, Gabriel Galipolo. With the worsening of the dollar and the rise in the price of food, the BC board will decide how much the basic interest rate will raise Selic.
This will be the fourth consecutive elevation of Selic. According to the latest edition of the Focus Bulletinweekly survey with market analysts lay by the BC, the basic rate should rise 1 percentage point at this meeting, from 12.25% to 13.25% per year.
In the statement of the last meeting in December, Copom reported that it would raise basic interest rates by 1 percentage point at January and March meetings. According to the committee, the worsening of external uncertainties and the noise caused by the government’s fiscal package at the end of last year justify the increase in basic interest rates in early 2025.
This Wednesday (29), at the end of the day, the Copom will announce the decision. After reaching 10.5% in June to August last year, the rate began to be elevated in September last year, with a 0.25 point, a 0.5 point and a 1 percentage point .
Inflation
In the minutes of the most recent meeting, the Copom warned of the extension of the Selic rate high cycle. The agency reported that the economic scenario requires a contractionist monetary policy and confirmed the intention of two elevations of 1 point. The Central Bank cited the recent high dollar and inflation for an “even more considerationist policy.”
According to the latest Focus report, the 2025 inflation estimated from 4.96% four weeks ago to 5.5%. This represents inflation above the ceiling of the goal set by the National Monetary Council (CMN), 3% for this year, and may reach 4.5% because of the 1.5 point tolerance interval.
Selic rate
The basic interest rate is used in public bond negotiations issued by the National Treasury in the Special Settlement and Custody System (Selic) and serves as a reference for other economy rates. It is the main instrument of the Central Bank to maintain inflation under control. The BC operates daily through open market operations – buying and selling federal government securities – to maintain the interest rate close to the amount defined at the meeting.
When Copom increases the basic interest rate, it intends to contain heated demand, and this causes reflexes in prices because higher interest rates make credit more expensive and stimulate savings. Thus, higher rates can also make it difficult to expand the economy. But in addition to Selic, banks consider other factors when defining consumer interest, such as risk of default, profit and administrative expenses.
By reducing Selic, the tendency is for credit to be cheaper, with incentive to production and consumption, reducing inflation control and stimulating economic activity.
Copom gathers every 45 days. On the first day of the meeting, technical presentations on the evolution and perspectives of the Brazilian and world economies and the behavior of the financial market are made. On the second day, the members of the Copom, formed by the BC board, analyze the possibilities and define Selic.
Continuous goal
For the new continuous goal system In force this month, the inflation target that must be pursued by the BC, defined by the National Monetary Council, is 3%, with a tolerance interval of 1.5 percentage up or down. That is, the lower limit is 1.5% and the upper is 4.5%.
In the continuous goal model, the goal is calculated month by month, considering the accumulated inflation in 12 months. In January 2025, inflation since February 2024 is compared to the goal and tolerance interval. In February, the procedure is repeated, with calculation from March 2024. Thus, the verification moves over time, no longer restricted to the closed index of December of each year.
In the last inflation report, released at the end of December by the Central Bank, the monetary authority maintained the forecast that the IPCA end 2025 at 4.5%but the estimate can be revised, depending on the behavior of the dollar and inflation. The next report will be released at the end of March.
