Betting on the Selic rate

Fernanda Cruz
Reporter from Agência Brasil

The president of the Central Bank (BC), Alexandre Tombini, announced a few days ago that the government may adopt new measures to contain inflation. "Actions have been taken, but it is plausible to say that others may be necessary. To decide on this, the Central Bank will monitor the evolution of the macroeconomic scenario," he stated.

According to Tombini, the Central Bank is concerned about the level of resistance in the inflation rate recorded in recent months. "The focus of monetary policy has been, and will continue to be, exclusively the maintenance of price stability in the Brazilian economy," he said. "Brazilian society knows that high inflation rates generate distortions in the economy," he added.

The president of the Central Bank, speaking at an event promoted by the France-Brazil Chamber of Commerce, cited the minutes of the last meeting of the Monetary Policy Committee (Copom), released on the 14th. "The greater dispersion recently observed in consumer price increases, seasonal pressures and localized pressures, among other factors, contribute to this scenario of greater resistance in inflation."

According to him, the Central Bank has been acting cautiously and paying attention to the messages it transmits. He commented on the change made to the projection of the basic interest rate, the Selic, for the end of 2013. After 16 consecutive weeks with the expectation of maintaining it at 7,25% per year, the Central Bank decided, on the 11th of this month, to change the estimate to 8% per year.

Rates are expected to rise starting in May.
This is indicated by research conducted by Febraban, suggesting it should reach 8,25% per year or 8,5% per year.

The benchmark interest rate, the Selic, is not expected to rise before May, according to the Brazilian Federation of Banks (Febraban). However, the forecast is that it will end the year 1 percentage point above the current level and rise even further in 2014, according to Febraban's expectations. Currently, the Selic rate is at 7,25% per year.

These estimates are part of the conclusions of the Febraban Survey of Macroeconomic Projections and Market Expectations, which polled 30 financial market analysts between March 14 and 19.

According to the survey, the median forecast for the Selic rate is 8,25% per year in December 2013 and 8,50% per year in December 2014, compared to 7,25% and 8,25%, respectively, in the previous survey (January 2013).

Few expect a change in the benchmark interest rate at the next meeting of the Central Bank's Monetary Policy Committee (Copom), which will take place in April. 89% of those surveyed believe the Selic rate will remain at 7,25% per year in 2014. "Most expect an increase in the rate starting in May, but there is great dispersion in the size and duration of the adjustment," says Febraban.

The research also points to an expected reduction in the default rate – 5,5% in 2013 and 5% in 2014 – compared to the 5,8% actually recorded in 2012. "This movement should contribute more effectively to the recovery of credit," says Febraban.

According to the research, credit will continue to grow, with a projected annual increase of 15,6% in 2013 and 15,7% in 2014. This level is close to that observed in 2012 (16,2%).