Copom reduces the economy's basic interest rate, the Selic, from 14.50% to 14.25% per year

The Monetary Policy Committee (Copom) of the Central Bank (BC) decided this Wednesday (17) to reduce the economy's basic interest rate, the Selic, by 0.25 percentage points, from 14.50% to 14.25% per year. The decision was taken unanimously by the committee.
"The external environment remains uncertain due to the lack of definition regarding the terms of the agreement to end armed conflicts in the Middle East and the consequences of the effects of these conflicts that have already materialized to date, with repercussions on global financial conditions. Such a scenario requires caution on the part of emerging countries in an environment marked by increased volatility in the prices of assets and commodities", says the note from the BC.
Most financial market analysts were already projecting, last week, a new cut in interest by the Central Bank this Wednesday.
"In relation to the domestic scenario, the set of indicators shows an acceleration in economic activity in the first quarter of the year, with more cyclical sectors returning to play a significant role, and the labor market still showing signs of resilience. In the most recent releases, headline inflation and underlying measures accelerated, further distancing itself from the inflation target, surpassing its upper limit in the last reading", stated the Copom.
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After the announcement of the closing of an agreement peace between the United States and Iran, on Sunday night (14), the expectation of a new reduction in the economy's basic rate was consolidated.
The majority of the market projected a cut of 0.25 percentage points, to 14.25% per year - which was confirmed. It is the third consecutive reduction in interest rates.
"Without prejudice to its fundamental objective of ensuring price stability, this decision also implies smoothing fluctuations in the level of economic activity and promoting full employment", said the Copom note.
The basic economic rate is the BC's main instrument to try to contain inflationary pressures, which have effects, mainly, on the poorest population.
➡After the reduction of tensions in the Middle East, with the opening of the Strait of Hormuz, the price of oil already fell at the beginning of this week, which mitigates the upward pressure on fuels and, consequently, inflation.
➡The result of official inflation in May was also considered positive by analysts, as the increase of 0.58% showed a slowdown in relation to the 0.67% recorded in April. The Copom indicated that it will calibrate the Selic as inflation begins to converge with the target.
USA and Iran reach peace agreement, say Trump and Pakistani prime minister
How decisions are made
To set interest rates, the Central Bank acts based on the target system. If inflation projections are in line with targets, it is possible to lower interest rates. If they are above, the Copom tends to maintain or increase the Selic.
Since the beginning of 2025, with the beginning of the continuous target system, the objective has been set at 3% and will be considered met if inflation oscillates between 1.5% and 4.5%.
When setting the interest rate, the BC looks to the future, that is, to inflation projections, and not to the current price variation, that is, in recent months.
This occurs because changes in the Selic rate take six to 18 months to have a full impact on the economy.
Right now, for example, the institution is already aiming for the target considering the year 2027 closed.
For next year, the financial market estimated, last week, that the IPCA will be at 4.10%, that is, above the central target of 3%.
➡In the minutes of its last meeting, held at the end of April, the BC reported that the increase in market inflation expectations did not prevent the latest interest rate cut because the "prolonged period" of maintaining the rate at 15% per year, the highest in 20 years, generated a slowdown in the economy and created conditions for this reduction to be compatible with the reduction in inflation expectations in the coming years. over time, as new information is incorporated into its analyses", informed the BC, at that time.

Adriano Machado/ Reuters

Source: G1