With a hawkish tone, COPOM raises the Selic rate by 100 basis points and anticipates two more hikes of the same magnitude – 12/13
At December’s meeting, the Selic rate ends the year at 12.25% and the committee reinforces its commitment to anchoring inflation expectations. Although part of the market moved to our expectation of a 1 pp increase after the Focus readout, the resumption of forward guidance came as a general surprise among economists, since the Central Bank already estimates the basic interest rate at 14.25% in March 2025 – above the market’s median (13.25%). With the higher inflation projection and the guidance for the next meetings, we have revised our expectation for the terminal rate of the cycle from 14.00% to 14.50%, with the start of cuts in December 2025 remaining at 14.25% (down from 13.75%).
Incorporating a higher average interest rate for the year, we have revised our IPCA projection to 4.2% and GDP to 1.8% in 2025. In inflation, we have revised our expectation from 4.3% to 4.2% incorporating a slowdown in underlying services together with the assumption of an intense cooling of proteins, although industrial goods should advance due to a more depreciated exchange rate. In activity, we expect growth for the year to reach 1.8% (down from 1.9%), reflecting the effects of interest rates, especially on investments and household consumption – due to a higher cost of credit. However, we recognize that the bias is upwards if a more moderate cooling of the fourth quarter of 2024 materializes and if the harvest estimates prove to be correct.
Finally, in the United States, the worsening composition of current inflation puts Fed Funds cuts at risk in 2025. We continue to project a 25bps drop in interest rates at next week’s FOMC. However, with the worsening composition of inflation, we believe that cuts in 2025 could be jeopardized, resulting in a higher terminal rate for the year. For now, we maintain our expectation at 3.75%.
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