Copom’s minutes strengthen expectations for the beginning of Selic cuts in August
Those who expected a Selic cut in September anticipated their projections, which were reflected in asset prices
The market had already shifted its bets on the beginning of the Selic easing cycle to August, and after the release of the Copom’s minutes yesterday, the perception that the basic interest rate will start to decline at the next meeting was reinforced. Those who were expecting a reduction in the benchmark interest rate in September brought forward their projections to August. This has been reflected in asset prices: short-term interest rates declined, and at the close, the interest rate curve priced in around an 80% chance of a 0.25-point cut, and a 20% possibility of a 0.5-point reduction.
A similar scenario is advocated by the chief economist of Armor Capital, Andrea Damico, who already expected the beginning of the Selic rate cut in August, with a rate of 12% by the end of the year and 9% in 2024.
“As the minutes themselves mention, there may be some dissent in this first meeting due to directors who would like to see a stronger anchoring of expectations or more advanced disinflation,” says Damico. “But for me, it became clear that the majority would prefer a cautious cut.”
