Lula's allies push for lower interest rates before Copom and market reevaluates cut
With Selic at 13.75% per year, government parliamentarians increase their criticism of the financial market and high interest rates on the eve of the Copom meeting.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM ESTADÃO · 2 MIN
The week starts with Copom in the spotlight. According to Estadão, the committee meeting takes place this week, at a time when the basic interest rate is 13.75% per year. Parliamentarians from the government base intensified their criticism of the financial market and the level of interest rates, in a movement that puts pressure for a cut within the Lula (PT) government coalition itself.
Government allies are putting pressure on both the market and the Central Bank for a rate reduction, according to the newspaper. The tone of the speeches increases discomfort among investors, who observe the political clash in parallel to the technical discussion about monetary policy.
Before the presidential election, the market's bet was a 0.25 percentage point cut in the Selic. This expectation changed after Lula's victory, according to Estadão, because some agents started to review the chance of a reduction due to fiscal uncertainty in the new term.
The central point of the debate, in the evaluation of this essay, is the credibility of public accounts. Lower interest rates require confidence that government spending will not put pressure on the economy in the future. When this confidence decreases, the market tends to demand more caution, and the discussion about the Selic is no longer just about the current moment.
This week's meeting will be observed less by the size of any adjustment and more by the signals that the Copom leaves for future meetings. Each statement by authorities and members of the government base is included in the calculation of those who price the interest.
What changes for the investor
For those who operate the stock market, Nasdaq, interest rates and the dollar, the main point of attention is the signaling that comes out of the meeting and the speeches that follow it. If fiscal uncertainty remains on the radar, the chance of a cut that existed before the election may remain reduced, which keeps the interest rate curve sensitive to each declaration. High interest rates tend to weigh more on growth stocks, such as those listed on the Nasdaq, while the exchange rate tends to react to the perception of fiscal risk. This text does not predict prices: the effect will depend on the Copom's decision and what comes later, and it is up to each investor to assess their own risk.
Automatically translated from Portuguese.
