G5 economist predicts pause in Selic after Lula's victory
Luis Otávio Leal, from G5 Partners, believes that the market movement in light of Lula's electoral result tends to make the BC hold back on a new Selic cut.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM MONEY TIMES · 2 MIN
Luis Otávio Leal, chief economist and partner at G5 Partners, considers that, at this moment, there is little favor for a further reduction in the Selic. In conversation with Money Times, he said that the movement of investors after Lula's victory tends to lead the monetary authority to postpone the cut at this week's Copom meeting.
Before the election, expectations were different. According to Money Times, the market predicted cuts both at this meeting and in December. The turning point came with the exchange rate: the dollar soared after Lula's election, according to Seu Dinheiro.
According to Leal, there are two reasons to leave the rate as it is. The first is the appreciation of the dollar. The other is the possibility that inflation projections will become more pessimistic. According to Money Times, the BC must wait for the dust to settle after the reaction to the dollar before making any new decision.
As for Seu Dinheiro, Leal states that the BC should stop the cuts at the next Copom meeting. For him, the environment is not conducive to reducing the rate in the following session. The two vehicles differ on the deadline: Money Times talks about this week's meeting, while Seu Dinheiro mentions next week's.
Going forward, Leal states that a cut in December would depend, first and foremost, on what the federal management indicates about the balance of the budget. In other words, the year-end framework would be more linked to the fiscal agenda than to an immediate decision by the BC.
What changes for the investor
For those who operate the stock market, Nasdaq, interest rates and the dollar, the reading is that a pause in cuts, if confirmed, would keep the base rate high for longer, and the exchange rate would remain a central variable. High interest rates for longer tend to weigh on risky assets, while a rising dollar can put pressure on inflation expectations, precisely the factor that Leal highlights. It is worth following the Copom statement and the movements of federal management in the fiscal field, which, according to the economist, are the main trigger for any cut in December.
Automatically translated from Portuguese.
