The Central Bank (BC) will raise the basic interest rate again this Wednesday by one percentage point, to 12.75%, according to the market, in a new attempt to curb inflation, which does not give a truce.
This will be the tenth consecutive increase applied by the BC to the Selic rate since the beginning of the increase in inflation, in March 2021. The rate reached its historic low of 2% in August 2020 to boost the economy, weakened by the pandemic.
The Monetary Policy Committee (Copom) will announce its decision this Wednesday, at the end of a meeting that started this Tuesday.
The move was anticipated in March by Copom, which raised the Selic by one percentage point, moderating the pace in relation to the three previous highs.
If this forecast comes true – the result of a consensus between a hundred consultants and financial institutions consulted by the economic newspaper Valor – the Selic will reach an unprecedented level since February 2017 (13%).
Even considering the end of the monetary adjustment cycle, BC authorities highlighted in their latest statement that inflation “continued to surprise negatively”.
And there have been no significant changes since then. The 12-month inflation rate through March rose to 11.30%, the highest since October 2003.
Prices rose again after Russia’s invasion of Ukraine on February 24, directly hitting the value of fuel and food.
Last week, the market raised the expectation of high consumer prices until the end of this year to 7.89%, against 6.97% a month ago, increasingly far from the ceiling of the BC’s 5% target.
effects of war
Mauricio Oreng, superintendent of macroeconomic research and strategist at Banco Santander Brasil, explains the one-percentage point increase in the “evolution of the macro scenario and prospects for inflation, since the last Copom meeting”.
In this sense, the IPCA-15 indicator of the statistics institute, which predicts consumer prices, “showed in April the highest index for the month in 27 years”, said Oreng.
In the external scenario, “the increase in uncertainties related to the conflict in Ukraine and the zero covid policy in China are other inflationary vectors that reinforce the perspective that the Selic will increase beyond 12.75%” per year, analyzed the expert.
The Copom warned that it will “persevere in its strategy until not only the disinflation process is consolidated, but also the anchoring of expectations around its goals”.
The target is set for 2023, when inflation of 4.10% is expected, according to the BC Focus survey.
For Oreng, the “Central Bank may review its flight plan again (to end the cycle at 12.75%), possibly signaling in the communiqué an increase of 0.5 percentage point (to 13.25%) for June”, putting an end to the highs.
The projection is in line with the market average, raised by the BC.
The other side of the Selic increase is the cooling effect on the economy, which is expected to grow only 0.70% this year.
On the other hand, analysts point out that the rates attracted foreign capital in search of higher returns, causing a fall in the dollar in the first months of the year.
However, the American currency has returned to trading around 5 reais in recent days after falling to 4.61 in April.