The Central Bank got it right three times when it raised interest rates to 15% per year at its meeting on Wednesday, the 18th. First, it surprised part of the market with an additional 0.25% increase, which will help anchor inflation expectations. Second, it made it clear that interest rates will remain high for a long time, to avoid misinterpretations that they could fall due to political pressure. And finally, it left the door open for a new cycle of increases in the future, if prices do not return to the center of the target.
The Central Bank also had reasons to keep the Selic rate at 14.75% per year, and it would not be wrong to choose this path. But the additional increase will increase confidence that inflation will not get out of control in the country, and this compensates for this tighter tourniquet in monetary policy.
On the one hand, the impact on the interest rate market will be residual, since the rate was already quite high; on the other hand, the effect on expectations will be much greater, because that was not what was priced into the interest rate curve. There is a lot to be gained at a small cost.
The decision is also consistent with the statement from the last meeting, in May, which spoke of “additional caution” in the management of interest rates, and with recent statements by the Bank’s president, Gabriel Galípolo , and several of its directors. The BC is also following the monetary policy manual by ending the cycle after an increase in the lowest dose of the medicine, of 0.25 percentage points.
A survey conducted by BTG Pactual bank showed the financial market divided as it has rarely been seen before: 51% of the 76 institutions that participated in the survey believed that the Selic rate would be maintained, while 49% believed in a further increase of 0.25. Even so, the majority believed that the most correct thing would be for the Central Bank to vote for a higher rate.
“62% of participants believe that Copom should raise the Selic rate — a sign that, even among those who price stability, the perception persists that the fundamentals justify a residual adjustment,” said BTG.
Many people may wonder why raise interest rates even further if inflation expectations for this year are falling (they went from 5.5% to 5.25% in the last four weeks) and, in addition, the dollar also fell to its lowest level since October.
The answer is that the Central Bank not only can but should take advantage of this good moment to gain more confidence and break what economists call the “inertia” of inflation, when high prices in the present contaminate estimates about the future.
If anyone had doubts about the independence of the Central Bank under Lula, they will be forced to rethink. This board will fulfill its institutional role of controlling prices and being the guardian of the currency.
