The Central Bank’s Monetary Policy Committee (Copom) decided, on Wednesday (08/05), to reduce the Selic rate by 0.25 percentage points, from 10.75% per year to 10.50% per year. This was the seventh consecutive cut in the basic interest rate, which began to decline in August 2023.
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Cuts in a Row
At the beginning of the cutting cycle, Selic was at 13.75% per year. Since then, the committee has been reducing the Selic at the same pace: 0.5 percentage points at each meeting. With this Wednesday’s decision to cut the Selic rate to 10.50%, the Central Bank (BC) changed this rhythm. Even so, the rate reached its lowest level since February 2022, when it was 9.25% per year.
Motivation
With the proposal to change the fiscal target and the delay in reducing interest rates in the USA, most economists had already started betting that the Copom would make this adjustment, cutting the interest rate to 0.25 percentage points.
Expectations for Upcoming Meetings
After the meeting, the committee’s statement highlighted the need for serenity and moderation in the conduct of monetary policy, with future adjustments in the interest rate conditioned on the firm commitment to converge inflation to the target. Copom justified this stance due to the slowness of the disinflation process, unanchored inflation expectations, and a challenging global scenario. The score for this Wednesday’s meeting was not unanimous.
The Copom
The Copom is formed by the president of the Central Bank, Roberto Campos Neto, and eight directors of the authority. Selic is the main monetary policy instrument used by the BC to control inflation.
Analysis:
The decision to reduce the Selic rate by 0.25 percentage points reflects a stance of monetary flexibility, characterized by gradual adjustments and a cautious approach to current economic conditions. This movement represents the seventh consecutive cut since August 2023, aiming to stimulate economic activity and promote recovery from the impacts of the pandemic. The change in the previous rate of cuts, which was 0.5 percentage points at each meeting, signals an adaptation in the Central Bank’s strategy. Although the decision was not unanimous, Copom remains committed to guaranteeing price stability and controlling inflation.
Sources: G1
