We expect the Selic rate to end the year at 8.75%
The evolution of the data suggests that the magnitude of the Selic rate cuts should remain at 50 points. Despite the fall in agricultural commodity prices, other vectors have brought inflationary pressure since the last Central Bank meeting – especially the depreciation of the exchange rate. The benign outlook, however, remains unchanged. Expectations for the IPCA over the next few quarters have fallen, according to the Focus survey, and the real should be favored this semester (i) by the robust trade balance, (ii) by the still high-interest rate differential and (iii) by the expected weakening of the dollar, with the start of monetary easing in the US.
Therefore, we continue to project a terminal interest rate of 8.75%, with a downward bias on our 2024 inflation estimate (revised from 3.8% to 3.7%). However, we believe that, in the short term, the Central Bank should maintain its more cautious tone, given that underlying services inflation has ceased to bring bearish surprises and the external scenario is still uncertain. At the moment, in addition to the geopolitical conflicts already present in December, the cost of freight has become a threat to global trade chains due to tensions in the Red Sea – the deviation in maritime transport could cause some disruption to the ongoing disinflationary dynamics of goods.
For more information, please check our Weekly_Report 48.
