On January 31st and February 1st of this year, the 252nd meeting of the Copom (Monetary Policy Committee) of the BC (Central Bank of Brazil) took place, which decided to maintain the Selic rate (Special System for Settlement and Custody) at the current level of 13.75% per year. The minutes were published on February 7 on the BC website, divided into four topics: update on the economic situation and the Copom scenario; scenarios and risk analysis; discussion on the conduct of monetary policy; and the monetary policy decision.
Selic is the basic interest rate, which influences other rates such as loans, financing and applications. It is part of the structure of the financial market and is managed and controlled by the Central Bank, through the Copom (Monetary Policy Committee), which has the objective of implementing monetary policy, establishing the Selic Rate target and analyzing the inflation.
In the justification of maintaining the interest rate, the Copom says in the 30th paragraph that it understands that this decision reflects the uncertainty surrounding its scenarios and a balance of risks with even greater variance than usual for prospective inflation. “Without prejudice to its fundamental objective of ensuring price stability, this decision also implies smoothing fluctuations in the level of economic activity and fostering full employment”, the agency reaffirms its commitment to Brazilians.
The impacts of the Selic rate
For Luciano Bravo, CEO of Comercial Intelligence and Country Manager at Savel Capital Partners, the Central Bank will maintain or increase the Selic rate in the coming months. “We believe and see this as a natural strategy, since it is the same strategy as the other countries in the world”. In updating the economic situation and the Copom scenario, the first paragraph analyzes events in other nations.
According to the document, the external environment continues to be marked by the prospect of global growth below potential next year. The easing of the policy to combat Covid-19 in China, a milder winter in Europe and the possibility of a gradual reduction in growth in the United States soften the global economic slowdown expected for the coming quarters due to the tightening of financial conditions in the main savings.
The Selic is the rate that governs the entire country, it serves to contain inflation, serves as the basis for the other rates and is the basis for investment income, explains Luciano Bravo. He comments that, for society, it directly affects purchasing power and high credit, which causes the population to reduce purchases. That is, when the Selic rate rises, there is an increase in interest on financing, loans and credit cards.
The future steps of monetary policy
In the Copom Minutes document, the body says it remains vigilant, assessing whether the strategy of maintaining the Selic for a longer period than in the reference scenario will be able to ensure the convergence of inflation. The BC committee analyzed an alternative scenario with stable interest rates over the entire relevant horizon, in which inflation projections stand at 5.5% for 2023, 3.1% for the third quarter of 2024 and 2.8% for % for 2024.
“The committee reinforces that it will persevere until it consolidates not only the disinflation process but also the anchoring of expectations around its targets, which have shown deterioration in longer terms since the last meeting”, says an excerpt from the 31st paragraph referring to to the meeting on the 6th and 7th of December 2022.
With the Selic rate in these conditions, it is increasingly necessary for entrepreneurs to look for new credit alternatives, analyzes the CEO of Comercial Intelligence. Bravo says loans and financing are becoming too expensive in the country. “Internationalizing your company is a great alternative to accessing credit in the US and Europe at lower rates and taking your business to another level in Brazil”, he explains.
The minutes ends with the committee emphasizing that the future steps of the monetary policy can be adjusted and the Central Bank body will not hesitate to resume the adjustment cycle if the disinflation process does not go as expected.
