The Central Bank indicates a stronger cut in Selic and makes the dollar exceed R $ 5.40; future interest rates fall

SAO PAULO – The recent change in the Central Bank’s discourse indicating a more incisive use of monetary policy to react to the economic impact of the coronavirus, led to a new day of strong dollar growth, which even exceeded R $ 5, 41 in the day. The commercial dollar closed with an increase of 1,887%, to R $ 5,4089 on purchase and R $ 5,4094 on sale.

In addition, there was a sharp drop in shorter maturity contracts for future interest rates, interrupting the recent movement in the slope of the curve, also amid indications that it will be less incisive in the purchase of securities that Congress will authorize. .

The future interest contract maturing in January 2021 fell 18 basis points to 2.65%, the ID for January 2022 was 3.37% to 3.18%, the minimum for January 2023 was 18 basis points, to 4.19% . January 2025 had a less significant drop, from 6 points, to 5.90%.

Last Monday, in a live broadcast of the newspaper O Estado de S. Paulo, the president of the Central Bank, Roberto Campos Neto, pointed to a new cut in the basic interest rate, noting that he can now see the scenario more clearly than before that there was a lot of fog.

Live, the BC president said that the situation in which interest policy no longer has an effect on the economy is “very distant” in Brazil. This was one of the concerns of investors, who in recent weeks demanded a cut in the Selic rate in the face of the economic recession.

“He is more relieved that liquidity and credit measures are beginning to take effect. This gives you peace of mind to think about more traditional monetary policy, especially since market volatility is lower, “said Fábio Akira, chief economist at BlueLine Asset, who followed life.

In a report, Barclays noted that changes in communication with the market suggest that the Central Bank intends to make a larger cut than the previously calculated price on the curve. So now, the bank expects the Selic rate to drop by at least 0.75 percentage points at the Monetary Policy Committee meeting on May 6, to 3.00%, not ruling out a 1-point cut if conditions Financial conditions are favorable.

A bigger cut would also depend on the orderly behavior of the exchange rate, he says. On the other hand, a significant risk to the expectation of reducing the Selic rate would come from fiscal policy, if Congress approves new and unexpected measures that put pressure on public accounts.

This movement leads to an increase in the real since the lower interest rates in Brazil reduced the differential in relation to US interest rates. USA, currently in the range of 0% to 0.25%, further reducing gains with carry trade, which occurs with the combination of making a short position in a currency with a lower interest rate and a long position in a currency with a higher interest rate. In addition to the difference between interests, the investor also benefits from the implicit variation of the exchange rate.

In a report, Credit Suisse also noted that it continues to project a drop to the real, being able to test R $ 5.50 in the short term. The Swiss bank also emphasized that the past few days have been dominated by the scenario of a sharp drop in the price of oil, which affects the feeling of risk in relation to emerging countries. Furthermore, it is worth noting that falling commodities reduce inflation in the short term, allowing for further cuts by Selic.

Regarding future interest, it is worth noting that, in recent days, the movement of the curve was driven by the expectation that the Central Bank would use more purchases of public and private securities to combat the crisis, instead of reducing Interest rates.

However, also on Monday, Campos Neto indicated that he will make more specific use of securities purchases and will act in the long term when there is a dysfunction, in the same way that the BC operates in the currency market.

He also stated that a quantitative easing strategy, such as that carried out by major central banks around the world, is more efficient when interest rates have already reached the floor. And that is not the case in Brazil. According to Campos Neto, the country is far from losing power in monetary policy, when movements such as QE are more necessary.

(With Agência Estado and Bloomberg)