Central Financial institution raises tone to comprise optimism with curiosity in 2023

Interest market seems to have corrected the “optimism” with monetary relief.

The harsher tone of the Central Bank (BC) board at the beginning of September aims, more than signaling a residual interest rate increase this month, to circumvent an “exaggerated optimism” in the market, which helped to erase bets from the yield curve in early Selic cuts in 2023. This is the assessment of economists consulted by the Estadão/Broadcast, Grupo Estado’s real-time news system. Despite the leaders’ emphasis on the chance of a “residual increase” in the basic rate in September, the analysts consulted did not change their assessment of the end of the current cycle.

On the night of Monday, 5th, BC President Roberto Campos Neto resumed discussions on a possible residual hike in the basic interest rate, the Selic, at the Monetary Policy Committee (Copom) in September, saying that the The message from the most recent meeting is still valid, and he added that the committee does not think about a drop in interest rates at this time. The rate is at 13.75% per year, and the Copom signaled, in August, that it will assess a possible adjustment of 0.25 percentage point this month.

to avoid surprises

On Tuesday morning, the 6th, the Monetary Policy director, Bruno Serra, highlighted that the BC was already very surprised in the current monetary tightening cycle and that caution is needed in closing, despite the fact that much of the interest rate hike has not yet have had an effect. In addition, he highlighted that the market’s discussion of a rapid interest rate decline with an increase in 2024 inflation projections is inconsistent.

The BC targets the first quarter of 2024 as a relevant horizon. Serra stated that the advance in expectations for that year has bothered the BC. The medians of market estimates in the latest Focus report show the Broad National Consumer Price Index (IPCA) – official inflation – at 5.27% in 2023 and 3.43% in 2024, both above the center of the target. , of 3.25% and 3.0%, respectively, while the BC projects 4.6% and 2.7%.

In the Focus Bulletin released on Monday, the median points to the Selic at 13.75% at the end of this year and the first cut in June, to 13.50%, ending 2023 at 11.25%.

Market adjusts forecasts, but does not bet on a rise in the Selic

After the speech of the president of the Central Bank (BC), Roberto Campos Neto, on Monday night, and that of the director of Monetary Policy, Bruno Serra, on Tuesday morning, the interest rate market seems to have corrected its “optimism”. with monetary relief. At around 2:30 pm on Tuesday, the curve indicated a reduction of 290 basis points in the Selic in 2023, to just over 11%, compared to 330 points the day before, in the accounts of the chief economist at Greenbay Investimentos, Flávio Serrano.

For September, pricing is 40% chance of a 0.25 point increase. “I think they wanted to remove or reduce these cut prices so soon, not least because projected inflation is still above target,” said Garde Asset chief economist Daniel Weeks, who maintains the forecast that the Selic will close the cycle in 13.75%.

For Luís Otávio de Souza Leal, chief economist at Banco Alfa, the statements by Campos Neto and Serra served as an effort to reduce bets on a rapid start to the cycle of cuts, especially when inflation expectations remain above the center of the goal. “It is sending a message to the market, saying that it is very optimistic about the interest rate drop next year,” he said. “For the BC, it does not matter if the market is very optimistic about the beginning of the interest rate cut cycle when you are in a process of raising rates.” After the speeches of BC leaders, Leal maintained the Selic projection of 13.75% at the end of the high cycle.

For Marco Caruso, chief economist at Banco Original, the BC’s biggest concern is to reach “an eventual pause in September, disallowing the market to enter into a ‘yay-yay’ of a projection of premature interest rate cuts”. “There is a huge disinflation challenge for the center of the 3% target.”

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