The Monetary Policy Committee (Copom) of the Central Bank met on Wednesday (27) and again decided to maintain the basic interest of the stable economy of 14.25% per year – the highest level in almost ten years.
See the impact of the Copom decision.
This was the sixth maintenance followed by interest by BC, which stopped up the Selic rate in September last year. The decision confirmed the expectations of economists of the financial market, which bet heavily in maintenance of basic interest rates.
When you raise interest rates or keep them high, the central bank more expensive credit and reduces the consumption in the country , thus acting to hold down inflation which showed strength last year and in early 2016. on the other hand, high interest rates hinder the activity level of the Brazilian economy and also job creation.
the monetary authority has said it will seek to “limit” the IPCA to the limits established by the National monetary Council (CMN) in 2016 (ie bring the rate to a level below 6.5%) and also converging inflation to . the central target of 4.5% in 2017
After the meeting, the central Bank issued the following statement: “the Committee recognizes the progress in fighting inflation, particularly the containment of second-round effects the relative price adjustments. However, it considers that the high level of inflation in twelve months and the distant inflation expectations of the objectives of targeting regime does not provide room for easing monetary policy [interest rate cut]. “
united Copom
the novelty of this Copom meeting that the decision, this time it was unanimous. All directors and the president of the Central Bank, who vote in decisions on interest rates, decided by the stability of the Selic rate – something that has not happened in about six months
In the last three meetings. Copom voted for divided:. most for maintaining interest and two directors (dissenting opinions) by the high basic rate
the unanimity in Copom, according to economists, can be an indication that the monetary authority is preparing the ground to cut the Selic rate in the next meeting.
a month ago, the National Congress, the President of the Central Bank, Alexandre Tombini said that the process of “detente” (decrease) in interest rates start after inflation expectations are lower. The latest forecast of the market is an IPCA of 6.96% this year, still above the ceiling of 6.5% of the target system.
The market believes that the base rate reduction cycle interest will begin in late August this year, but there are analysts who believe that the cuts could begin as early as mid-July. The forecast is that in April 2017, the rate is already at 12% per year.
Board can be changed
This may be the last Copom meeting the current board of the Central Bank, which can be exchanged with the eventual fall of President Dilma Rousseff and rise of Michel Temer to the Presidency of Republic in the wake of the impeachment process.
a possible replacement in BC would have to be preceded by the new board hearings in Congress and the subsequent approval of new names by the Economic Affairs Commission (CAE) of the Senate and then by the plenary of that house. Therefore, the exchange would not be immediate.
Scenario of the economy
Currently, the Brazilian economy goes through the worst recession in its history. Last year, the Gross Domestic Product (GDP) dropped by 3.8% and for this year, the financial market already provides for a greater fall further, to 3.88%. If confirmed, it will be the first time in history with two consecutive years of GDP shrinkage.
With the skidding economy, unemployment grows. According to the Brazilian Institute of Geography and Statistics, unemployment stood at 10.2% in the quarter ended in February – the highest rate in the series, which began in 2012. For the first time, the rate of Pnad Continuous reaches double digits. These factors contribute theoretically to control inflation.
However, still influenced by the high level of last year, Brazilian inflation in 12 months, remains high, despite the decline in recent months. Over the 12 months to March, inflation totaled 9.39%. It remains well above the central target of 4.5% set for this year, and also the ceiling of 6.5% of the Brazilian target system.
higher real interest in the world and savings
with the decision Wednesday, Brazil remains the leader in the world ranking of real interest (calculated reduction of expected inflation for the next 12 months), compiled by MoneYou and the Infinity Asset Management, with a rate of 7.59% per year.
Second, Russia appears, with real interest of 2.59% per year, followed by China (2.3% per year) . In the 40 economies surveyed, the average rate is negative 1.5% a year.
The decision of the Central Bank on the interest rate also influences the profitability of savings. Calculations of the National Association of Executives in Finance, Administration and Accounting (Anefac) point out that, with the basic interest rate currently at 14.25% per year, investments in fixed income, such as investment funds, gain more attractiveness and gain savings in most situations. The savings remains attractive only for funds with management fees above 2.5% per year.
This is because the performance of fixed income funds rises along with the Selic. The income of the passbook when the interest rate is above 8.5% per year, as currently is limited to 6.17% per annum plus the variation of the Referential Rate (TR).
this year, for the low-income account and the recession scenario in the Brazilian economy, the savings has lost more than R $ 24 billion. – a record for the first quarter of a year
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