In one year, the Selic interest rate goes from 2% to 9.25%

The Selic interest rate is the monetary policy interest rate used by the Brazil Central Bank (BCB). In 2021, that tool went from 2% in february to 9.25% in november after the last reunion of Copom, the BCB's Monetary Policy Committee. 

At the last Copom meeting, held yesterday, the Selic rate rose from 7.75% to 9.25%, up 1.5 percentage points. According to analysts, this more hawkish tone by the Copom is an attempt to prevent runaway inflation. 

Which indicates that interest rates in Brazil will stay high for longer. The expectation is that inflation will only start to decelerate around the second quarter of 2022, but not even this is guaranteed given the numerous crises that President Bolsonaro and his government produce weekly.

The feeling of insecurity generated by the government greatly affects the forecasts of investors and the market in general.

With that, the next government should receive a country pressured by the basic interest rates of the economy and with the risk of greater lack of control in the public debt, which is already high.

  

Fed cuts interest rates and Covid-19 may lead Brazilian Central Bank to rethink monetary policy and cut interest rates again in Brazil

The Federal Reserve's (Fed) decision to cut interest rates led the Brazilian Central Bank to practically discard the minutes of the institution's last meeting of the Monetary Policy Committee (Copom). In it, the Brazilian Central Bank indicated the end of the process of cutting the basic interest rate (Selic), which currently stands at 4.25% per year, the lowest level in the country's history.

Yesterday, the Brazilian Central Bank issued a new note in which it indicates that the Monetary Policy Committee (Copom) may reduce the interest rate again. This change in Brazilian monetary policy intends to further slow the country's economy, mainly due to the unfolding of the economic crisis generated by the new coronavirus (Covid-19).

Meanwhile, in Brazil, Economy Minister Paulo Guedes insists on long-term reforms (pension reform, administrative reform, and tax reform) to combat short-term economic issues (coronavirus and Fed interest rate cuts).

Concurrently, in Brazil, rains on the coast of São Paulo and Rio de Janeiro cause the death of 19 people and leave hundreds homeless. The labor market in Brazil, according to IBGE, continues to break records in the growth of informality. For this reason, according to the IBGE, "since 2016, the country has shown a drop in the proportion of the employed population that contributes to a social security institute". This may result in the effects of the Pension Reform not having the results expected by the government.

Brazilian BC cuts Selic and rate drops to historical level of 4.25% per year

The Monetary Policy Committee (Copom) of the Central Bank (BC) of Brazil decided to reduce the basic interest rate, the Selic, from 4.5% to 4.25% per year. This is the lowest Selic rate since 1999 when Brazil adopted the monetary policy of inflation targeting.

The expectation of financial market specialists in Brazil is that the Selic will only rise again in 2021. In a statement, the Copom stated that its next steps "will continue depending on the evolution of economic activity, the balance of risks and the projections and expectations of inflation, with increasing weight for the calendar year 2021".

In general, the Brazilian financial market understood the new cut as a wise decision by the Brazilian Central Bank, as it will reduce interest rates and may positively impact the productive sectors of the economy, which, in turn, may increase the generation of jobs in Brazil. The measure also helps to lower the country's public debt costs.

Despite the Selic cut, market interest rates remain exorbitant in Brazil. According to an article published in the Jornal dos Economistas, written by the national coordinator of the Brazilian Citizen Debt Audit, Maria Lucia Fattorelli, the fault lies with the Brazilian Central Bank itself.

She believes that "the financial market charges interest as it sees fit on loans, overdraft, credit card etc. First, because there is no regulation that limits interest: it should be noted that since 2003, part of Article 192 of the Brazilian Constitution that limited real interest to 12%, above which the practice of usury would be configured ".

Bradesco (BBDC4) estimates that the basic interest rate of the Brazilian economy, the Selic, could close 2019 at 4.75%

Banco Bradesco revised its forecast for Brazil's basic interest rate, Selic. Now the bank's expectation is that Selic will close 2019 at 4.75% and remain at this level until the end of 2020. The previous forecast was that interest would be at 5%.

For Bradesco, the Monetary Policy Committee (Copom) of the Brazilian Central Bank should promote two further cuts of 0.50 percentage points in the September and October meetings. Afterward, Bradesco believes that the Copom will reduce 0.25 percentage points in the December meeting. That would lead to 4.75% the rate that currently stands at 6%.

This bet by Bradesco increases the pressure on the Copom and the Brazilian Central Bank, as it adds to the criticism that many economists are making against the current government's economic policy.

For economist Laura Carvalho, for example, the Copom "amid high unemployment, economic stagnation, rising wage inequalities, and below-target inflation expectations, waited" until the end of July 2019 to reduce unemployment. Selic rate by 0.5 percentage point to 6% per annum.

So far, the fall of Selic and the approval of the Social Security Reform have not been enough to leverage the Brazilian GDP. Jair Bolsonaro's government has so far presented no plans to reactivate the Brazilian economy. This, coupled with the absurd statements of both the president and ministers of his government, make the future scenario of the Brazilian economy even more uncertain.

Brazilian Chamber of Deputies approved the Social Security Reform in the second round; text now goes to the Senate

Pension reform is expected to produce savings of approximately R$ 900 billion over the next 10 years. This number is very close to what the Brazilian financial market expected. Now the text of the Reformation goes to the Senate, but it shouldn't change much.

Even with the approval of the Pension Reform, analysts believe that the year 2019 is already lost. That is, the Brazilian economy must remain stagnant or with very low growth until the end of the year.

The basic interest rate cut of the Brazilian economy, Selic, should continue. The Brazilian Central Bank, through the Copom, cut interest rates from 6.5 to 6% per year. Analysts believe the Copom should cut interest rates again to 5.5% at the next meeting, or at least cut interest rates by 0.25% to 5.75%.

After cutting the basic interest rate from 6.5% to 6% per year, Selic, by Copom, the Brazilian Central Bank takes a more "dovish" stance

The Monetary Policy Committee (Copom) of the Brazilian Central Bank reduced from 6.5% to 6% per year the basic interest rate, the Selic rate. The cut aims to increase the possibility of further economic growth in Brazil.

According to bank XP, the ruling shows that the central bank has taken a more "dovish" stance, that is, more lenient about inflation.

For professor Paulo Feldmann, from USP's School of Economics, Administration, and Accounting (FEA), “average income has fallen a lot, 1.3% a year ago. If we consider that in this period there was inflation around 5%, the fall in average income is even greater, around 6%. That is, people have less income to consume.”

Feldmann believes that reducing to Selic is not enough. For him, "the Brazilian Central Bank should act by forcing a reduction in interest rates for loans to both individuals and companies. It is very illusory to think that now that Selic has fallen to 6% Brazil will grow."

Cost of living in Brazil: IGP-M slows in July, a rising dollar and financial market betting massively on Selic interest rate cut

According to the Getulio Vargas Foundation (FGV), the General Price Index - Market (IGP-M) decelerated to 0.40% in July after showing a high of 0.80% in June. With the July result, the IGP-M accumulated high of 4.79% in the year and 6.39% in 12 months.

Meanwhile, the Brazilian financial market is betting heavily on the 0.50% cut in the economy's base interest rate, the Selic, which is currently at 6.50%.

Some more cautious analysts believe that the Brazilian Central Bank, at the next Copom meeting to be held tomorrow, July 31, should cut Selic by only 0.25%, leaving the annual interest rate at 6.25% per year in Brazil.

The dollar price in Brazil closed again high yesterday, July 29. The US currency ended the day at 0.29% appreciation, selling at R$ 3.7830.

Cost of living in Brazil: fall in fuel prices causes the Extended National Consumer Price Index 15 (IPCA-15) to rise only 0.09% in July

Increases in airfare and electricity prices in Brazil were not sufficient to produce a big rise in inflation in July 2019. The Broad National Consumer Price Index 15 (IPCA-15) rose 0.09% in July after registering an even lower growth of 0.06% in June. The main factor for this very small growth was the fall in fuel prices.

With a stable IPCA, several Brazilian economists are betting on a 0.25% reduction in the basic interest rates of the economy (Selic). IPCA closes June up just 0.01%, reflecting weak demand and the contraction in food and fuel prices. Without cost-of-living pressure, analysts are predicting a drop of at least 0.25 percentage points in the Selic rate at the next Copom meeting in the last two days of July. Currently, the Selic rate is at 6.5% per year.

With Selic at this level in Brazil, fixed-income investments such as savings, floating-rate CDBs, DI funds, and Selic Treasury bonds pay less, as their yields are pegged to the Selic rate.

Brazilian financial market raises GDP projection to 2019 for the first time in 20 weeks

The Focus report, published by the Brazilian Central Bank every Monday, indicates that projections by Brazilian financial market analysts estimate GDP growth to be 0.81% to 0.82% by 2019. The same analysts consulted by the Brazilian Central Bank continue betting on the growth of 2.10% of the Brazilian GDP in 2020.

The change is related to the approval of the first shift of the Pension Reform by the Chamber of Deputies of Brazil. Even so, the performance of the Brazilian economy is still very poor. Many analysts expect the government to present some kind of measure that could warm the Brazilian economy a bit more.

Economists lowered the estimate for the Brazilian official inflation index (IPCA), which was down to 3.78%. A week ago it was at 3.82%. This year's central target is 4.25%, with a tolerance of 1.5 percentage points to more or less.

Many analysts believe that the Central Bank should, at the next Monetary Policy Committee meeting (Copom), which takes place in the last two days of July 2019, should lower the Selic rate of the Brazilian economy that is now at 6, 5% per annum.

BM&F Bovespa (B3), the São Paulo Stock Exchange, exceeds the number of one million individual investors

BM&F Bovespa, the São Paulo Stock Exchange reached, in May 2019, the number of 1.09 million individual investors. The mode of investment maintained in May the pace of entry of new investors in the wake of the low-interest rate (Selic) environment in Brazil. Thus, the growth in relation to the number of active individuals investors at the end of 2018 was about 35% so far. Continuing the trend thus, the mark of 1.5 million individuals should be reached by the end of 2019.

Despite the growth, the number represents 1.3% of the Brazilian population. To give you an idea, Brazil is very far from the US, for example, where 54% of people invest in the stock market. The growth was announced on June 10 by the São Paulo stock exchange operator.

B3 also reported that the Brazilian domestic stock market turnover in May 2019 reached 15 billion reais, an increase of 5.8% compared to the same month last year. This gave B3 26% higher contract revenue.