The Monetary Policy Committee (Copom) of the Central Bank meets this Wednesday, March 18, 2024, to set the new level of the Selic rate. Currently, the basic interest rate of the economy is 15% per year, the highest level recorded in the last 20 years, maintained since the January meeting.
Despite the historical high, the financial market projects that Copom may make a moderate cut of 0.25 percentage points, reducing the Selic to 14.75% per year. This expectation is shared by 66% of the investors surveyed, while 20% believe the rate will be maintained, and 14% indicate the possibility of a more significant reduction of 0.5 percentage points.
In its analysis, the investment bank Goldman Sachs highlights the possibility of a cautious adjustment, signaling that the cut should be small to avoid unwanted impacts on inflation. Moreover, the latest Focus Bulletin, released by the Central Bank, adjusted upward the forecast for the Selic rate at the end of 2024, raising the expectation from 12.13% to 12.25% per year.
The international scenario marked by geopolitical conflicts has influenced the behavior of monetary policy, making a quicker reduction of interest rates in Brazil difficult. For this reason, Copom’s decision gains relevance, as it will be analyzed in light of external pressures and the country’s internal conditions.
Thus, the result of this Wednesday’s meeting may indicate the direction the Central Bank will take in controlling inflation, taking into account the current economic challenges. The decision will be closely monitored by market agents and investors who follow the evolution of the Brazilian economy.
Impacts of the international context and inflation on monetary policy
The conflict in the Middle East caused a significant increase in the price of oil and the dollar, putting pressure on the Brazilian economy. The dispute occurs near the Strait of Hormuz, a strategic route for global oil transportation, which intensified the risk of supply interruption. As a consequence, the price of the barrel approached US$ 100 due to attacks on ships in the region.
This escalation in oil prices directly impacts the costs of fuels, transportation, and industrial production in Brazil. Additionally, there are indirect effects on the price of fertilizers and other inputs used in agriculture and industrial sectors, further increasing inflationary pressures in the country. Thus, the global scenario makes reducing production costs difficult and affects the consumer price chain.
On the domestic front, the Broad National Consumer Price Index (IPCA) registered a 0.70% increase in February 2024, above the expected median of 0.63%. This inflation higher than forecast raises the Central Bank of Brazil’s caution regarding the Selic rate cut, as the persistent price increase compromises the control of monetary policy.
Besides inflation, the international situation, marked by uncertainty caused by the conflict, limits the space for more significant cuts in the basic interest rate. The Goldman Sachs bank, for example, indicates that there is a low probability that the Selic will not be reduced in March, but the greater expectation is for minimal adjustments. Thus, external conditions and inflation keep monetary policy under pressure for stability.
Consequently, the global scenario and the internal inflation data indicate that the reduction in the Selic rate will be more restrained in this round of decisions. The conclusion of the process still depends on the analysis of the Monetary Policy Committee (Copom), which should evaluate these factors in its meeting this Wednesday. Besides this analysis, other economic variables may be considered for defining the direction of monetary policy in the coming months.
