Market expects Copom to add 1 percentage point to Selic and raise the rate to 5.25% per year
Dollar closes at high hours before the Central Bank announces the direction of Brazilian interest ratesO dollar and the Brazilian Stock Exchange closed down this Wednesday, 4th, hours before the Central Bank announced the new interest rate and with the fiscal risk returning to the radar. The North American currency ended the day with a decline of 0.13%, at R$ 5.186. The exchange rate reached a peak of R$ 5.246, while the minimum exchange rate did not exceed R$ 5.165. The dollar ended the day up 0.53%, at R$ 5.193. O Ibovespa, a B3 reference, closed with a drop of 1.44%, at 121,801 points. The trading session this Tuesday, 3rd, ended with an increase of 0.87%, at 123,576 points.
The recent acceleration of inflation makes the market bet on an increase of 1 percentage point in the Selic by the Monetary Policy Committee (Copom), raising the interest rate to 5.25%. At the last meeting, in June, the board signaled that it should repeat the dose of 0.75 percentage points, but “left the door open” for a more robust increase. The financial market once again raised its outlook for the Broad Consumer Price Index (IPCA), the official meter of inflation Brazilian, to 6,79%. This was the 17th consecutive week that the estimate has been revised upwards. In the last edition, the forecast indicated an increase of 6.56%. The BC pursues an inflationary target of 3.75%, with a margin of 1.5 percentage points up or down, that is, between 2.25% and 5.25%. The index preview was 0.72% in July, the highest value since 2004, and accumulated 8.59% in the last 12 months. Market analysts also revised upwards the expectation for the 2022 IPCA, from 3.80% to 3.81%. The target for the BC next year is 3.50%, with a variation between 2% and 5%. Despite the new advance in inflation expectations, the market maintained the Selic forecast, the BC's main tool for containing price variations, at 7% per year in 2021 and 2022.
Investors also reflect on the return of fiscal risk after the new precatório crisis and the debates surrounding the reformulation of Bolsa Família. Part of the fund that the government wants to create with the Proposed Amendment to the Constitution (PEC) of court orders will be used to pay for social actions. The document, prepared by Ministry of Economy, has already been delivered to the Civil House and will be presented to the Congress this Thursday, 5th. The Executive should also present this week the Provisional Measure (MP) that creates Auxílio Brasil, as the new aid package for the most vulnerable will be called, such as Bolsa Família. The PEC of precatório, as the Union's debts that are no longer subject to judicial appeals are called, proposes the formation of a fund with privatization resources and the sale of other public assets, such as real estate. The economic team's project determines that 60% of the resources from this fund are to reduce public debt, 20% for the payment of court orders and 20% for the social area.
The background is being designed to be outside the spending ceiling, the rule approved in 2016 and which limits Union spending to the previous year's budget adjusted for inflation. In Economics reasoning, revenues originating from privatizations and asset sales are not current and do not comply with the fiscal barrier rules. The text determines that the value of court orders paid annually is limited to 2.6% of Net Current Revenue (RCL). Payments will be divided into three bands: all court orders up to R$ 66 thousand will be paid immediately; debts above R$ 66 million, called super precatório, will be paid in installments with a down payment of 15% of the value in 2022 and the remainder divided into nine equal annual installments; the values in between these extremes will be arranged in ascending order. According to the government's accounts, the budget has resources to pay off all court orders below R$ 450 thousand.