The end of the cycle
Whether the Central Bank will cut the SELIC rate by 25 basis points at the next COPOM meeting or not will only be known next Wednesday. But in either case, that meeting will mark the end of the current easing cycle. The deprecation of exchange rate last week was in large part (although not totally) due to the appreciation of the dollar, and unless the Bank sets out on quixotic quest to fight the appreciation of the dollar versus the real armed with its currency swaps, it should continue its past behavior, limiting itself to smoothing out an inevitable movement. Since many firms have large debts in dollars, often not fully hedged, that depreciation raises the risk of an additional deceleration of the economic recovery, placing a slight bias for the Central Bank to act as it signaled during the last meeting, of lowering the SELIC rate another 25 points before ending the cycle. Whatever the decision is, the Central Bank cannot be judged on its last decision, since the consequences will be virtually irrelevant on inflation, economic activity and the exchange rate. Rather, it must be judged by its overall work, which under the current management has had excellent results.
Now read on...
Register to sample a report