On June 18, 2024, the Monetary Policy Committee (Copom) promoted the first cut in the Selic rate since May, reducing the basic interest rate by 0.25 percentage points to 14.75% per year. This change signals the beginning of an adjustment in the conduct of Brazilian monetary policy, the Central Bank (BC) announced in its official statement.
The document highlighted that the decision is part of a cycle of calibrating the monetary strategy, gradually adjusting it in light of the current economic scenario. However, Copom did not indicate any forward guidance, that is, it did not present clear directions for the next steps, leaving the expectation of future cuts conditioned on the analysis of incoming economic data.
Market experts assess that monetary policy still maintains a restrictive character, pointing to a gradual decompression of interest rates over time. Former Central Bank director Reinaldo Le Grazie expressed the forecast of a more significant reduction, estimating that Copom should cut the rate by 0.5 percentage points at the next meeting.
Moreover, the official statement explicitly mentioned the conflict in the Middle East region, acknowledging the geopolitical impacts that introduce elements of uncertainty into the global economy. This conjuncture justifies the cautious stance adopted by the Committee during its deliberation, restricting larger moves at this moment.
Economic Context and Reactions to the Selic Cut
Since February 28, 2024, the conflict in the Middle East has been increasing uncertainty in global markets, directly affecting the Brazilian economic scenario. The Monetary Policy Committee (Copom) dedicated an exclusive section in its official statement to highlight the impacts of this international crisis on the local conjuncture, evidencing the concern with inflationary and exchange rate effects.
The price of oil, which has become a more closely monitored indicator, may influence the Central Bank’s future decisions. The expectation is that the commodity’s value will fall to less than US$ 80 per barrel, which could pressure new cuts in the Selic rate throughout the year. However, this movement depends on how markets will react to geopolitical variations.
Overall, Nomos’ chief economist, Beto Saadia, projects that the Selic should undergo further reductions until reaching 13.25% per year by the end of 2024. This forecast is based on the analysis of inflation behavior and the external context, including the influence of the conflict and international prices. Thus, a monetary policy adjusted according to how these factors evolve is expected.
On the other hand, analysts have highlighted that the tone adopted by Copom in its last meeting was more cautious than expected, showing less dovish inclination. According to Luciano Sobral, chief economist at Neo Investimentos, the committee opted for a less aggressive stance in light of the war, preferring to monitor the scenario before accelerating cuts.
Furthermore, Brazilian monetary policy is still seen as restrictive, especially due to the impact of commodity prices. Meanwhile, the effects of these elements on inflation and economic activity continue to be monitored to determine the Central Bank’s next steps. In this way, the environment remains delicate and subject to adjustments depending on the international and domestic conjuncture.
