Lula's victory makes the dollar soar and takes the Selic cut off the near horizon
According to Luis Otavio Leal, chief economist at G5 Partners, the Selic tends to remain at a standstill at the next meeting, and a reduction in December will only gain strength if the Executive makes it clear how it intends to manage the budget.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM SEU DINHEIRO · 2 MIN
Lula's victory in the election sent the dollar soaring and called into question the expectation of a new Selic cut. According to Seu Dinheiro, the Central Bank should maintain interest rates at the following week's meeting, with no climate for a reduction, and the chance of a cut in December will depend, mainly, on how the Executive positions itself on the direction of the budget.
Before the polls, the market was betting on cuts. According to InfoMoney, the dominant view was of a 0.25 p.p. reduction in the Selic, but the result turned that probability upside down. Today the rate is 13.75%, and a large part of the market projects maintenance until the end of the year. XP, for example, plans to pause interest rates until the end of 2027.
According to Money Times, Luis Otavio Leal, one of the partners at G5 Partners, heads the house's economic analysis. He points to the rising exchange rate and the chance of inflation expectations deteriorating as reasons for maintenance. In his reading, the combination of these two factors makes the monetary authority more cautious at this moment.
The Copom, according to InfoMoney, will decide under inflationary pressure and with fiscal distrust in relation to Lula being re-elected. In other words, the discussion stops revolving only around inflation and starts to include the credibility of the next government's accounts.
The stock market also felt the impact. According to Money Times, the Ibovespa fell by around 20% shortly after the election was announced.
In Leal's assessment, the Executive's signal about fiscal balance is the factor that could unlock a cut in December. Without this clarity, the path to falling interest rates becomes conditioned and further away.
What changes for the investor
For those who invest and operate, the scenario suggests high interest rates for longer, with the dollar under pressure and the stock market sensitive to fiscal news. High rates tend to weigh on stock valuations and the cost of credit, but the effect varies by sector and company. In the coming months, the main thermometer will be how the government responds to charges on public accounts, and not just the performance of the economy.
Automatically translated from Portuguese.
