Possible increase in Selic is a “demand for data”, says expert

A source of debate among economists, the Selic rate has raised questions about a possible increase in September. The Brazilian economy's base interest rate has remained above 10.40% since February 2022. With inflation moving away from the target set by the Central Bank – 3% per year – the market expects the Selic rate to increase by up to 0.5%. It is worth noting that the rate has been falling since August last year.

For Solange Srour, director of macroeconomics for Brazil at UBS Global Wealth Management, the rise is justified by factors considered “domestic fundamentals” (via InfoMoney):

“I don’t see an interest rate hike as an exaggeration. It would only be that way if some of the domestic fundamentals were better… We also have inflation that is benign in the short term, but is getting worse on the margin. Agents are increasing their inflation projections for this year.”.

Reasons for discharge

Srour does not point to the value of the dollar as the only factor in the change in the Selic rate; nor is it market pressure due to the new Central Bank. The lack of idle capacity – related to potential – and the strength of the Brazilian economy are aspects mentioned by the economist. She also believes that a pricing that adds 0.25 to the current value of the basic rate (10.40%) seems fairest.

“Even if the exchange rate goes to R$5.30, this would still require a restrictive policy to reach the target… “I don’t think the market is demanding anything from the Central Bank because it is a new Central Bank. The data demands it”said Solange Srour (via InfoMoney).

_{In July, the BC report predicted Selic at 10.% until December (Photo: reproduction/X/@rvitoria)}

Relationship with FED

The United States Central Bank, the Federal Reserve (FED), will hold a meeting in September to discuss interest rates. One of the reasons for the rise in the dollar and the consequent inflation in Brazil is precisely the value of American interest rates, which may start to be reduced depending on the decision. In fact, this is the expectation of the financial market. Even so, Srour stressed that this should not be decisive for the Central Bank's attitude:

“The BC cannot be so tied to the Fed in a situation where the inflation trajectory here is at risk”.

After a peak of 13.75% between 2022 and 2023, the Selic has shown a decrease or maintenance of its value since August 2023. Last Friday (16), President Lula expressed his dissatisfaction with the value of the rate in an interview with Rádio Gaúcha, stating that its reduction is a commitment to the Brazilian people.

Featured Photo: facade of the Central Bank of Brazil (Reproduction/Rafa Neddermeyer/Agência Brasil)