Interest rate should be maintained at 13.75% per annum, after the Copom meeting this Wednesday; understand

The Monetary Policy Committee (Copom) of the Central Bank (BC) announces this Wednesday night (22) whether or not to change the basic interest rate (Selic) in the country. The announcement takes place against a backdrop of tension, in which President Lula (PT) and allies are demanding that the agency lower the rate. According to the projection of financial market economists, the Copom should keep the economy’s basic interest rate stable at 13.75% per year.

According to the most recent edition of Boletim Focus, the forecast for interest rates should remain at the same level for the fifth week in a row. The market also projects that the Central Bank will signal a cut in the Selic only from the 2nd quarter, where the rate should fall by 12.75% for 2023, while that of 2024 will remain at 10.0%.

Copom’s decision is awaited with expectations by the productive sector. According to the finance specialist at the National Confederation of Shopkeepers (CNDL), Merula Gomes, although the sector prefers lower interest rates, the issue must be decided technically.

“The productive sector improves when interest rates are lower, so we look forward to this drop in interest rates, which really shouldn’t happen now. We understand that lower interest rates favor the productive sector, but this is a technical issue that should be analyzed technically and not politically. Because any other pressure that is not, the calculations, and the issues that are happening can even have a negative effect on the interest rate”, he points out.

To define the level of interest, the Central Bank uses the inflation target system. With high interest rates, credit becomes more expensive and consumption drops, which prevents industry and commerce from raising prices. This is the justification that the BC defends, to keep inflation under control.

After falls in the last months of 2022, inflation expectations have risen. Although it presented a negative variation in the last Focus bulletin, the inflation estimate for 2023 is at 5.95%. For 2023, the inflation target was set at 3.25%, and will be considered formally met if it fluctuates between 1.75% and 4.75%.

For the financial analyst, one of the ways to facilitate the reduction of interest rates is the presentation of the fiscal framework.

“This path to reducing interest rates goes through reforms, tax reform, administrative reforms, tax reforms and having a fiscal framework that the market can trust. So we will experience a more acceptable drop in interest rates with greater security. We have interest rates in the United States rising, the central bank there making new adjustments, upwards in the interest rate. And that’s why it also puts pressure on Brazil”, he explains.

Scenery in USA

This Wednesday (22) also happens the meeting of the Federal Reserve (Fed), responsible for deciding the interest rate in the United States. The decision will be the first after the bankruptcy of the Silicon Valley Bank (SVB) which began a period of instability in the American banking sector. In the United States, the big question is how the banking crisis will influence the decision of the North American Central Bank.