The Monetary Policy Committee (Copom) of the Central Bank (BC) begins today (20), in Brasília, the sixth meeting of the year to define the basic interest rate, the Selic, and may maintain the monetary tightening with another increase in the rate, but at a lower level than in the last meetings, when it was raised by 0.5 point. Tomorrow (21), at the end of the day, the Copom will announce the decision.
In communiqué after the last meeting, in August, the agency informed that it would raise the rate by 0.25 point in that meeting in September, in view of 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 could also force the Central Bank to raise it again.
However, the board is divided between an increase to 14% per year, or maintaining the basic rate at 13.75% per year, as expected by the financial market. According to Focus bulletina expectation is that the Selic ends the year at this level. In addition to the meeting this Tuesday and Wednesday, the 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.
Selic rate
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.
Inflation target
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 June by the Central Bank, the monetary authority officially admitted the goal overflow of inflation 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 projection it’s an inflation closing the year at 6%according to Focus bulletin yesterday (19). For the 12th consecutive weeks, financial institutions have been reducing the forecast.
