The dollar opened slightly higher this Tuesday (16), as investors analyzed the minutes of the last meeting of the Copom (Monetary Policy Committee), during which the Central Bank reiterated its commitment to the inflation target, while abroad, the American currency gave way against several pairs of reals.
At 9:09 a.m., the American currency increased by 0.27%, listed at R$5.4363. On Monday (15), the dollar advanced by 0.14%, quoted at R$5.419, and the Brazilian stock market increased by 1.06%, to 162,480 points.
The move was guided by data measuring Brazil’s economic activity. Considered a sort of “snapshot” of GDP (Gross Domestic Product), the IBC-Br showed that the Brazilian economy started the fourth quarter in the negative, with a decline of 0.2% in October – an indication, for the market, of how activity has entered a slowdown amid high interest rates.
The result contradicted economists’ expectations of a 0.1% increase consulted by Reuters, also marking the second consecutive month in the red. In September, the decline was 0.19%.
The IBC-Br adds to the mix of indicators that point to an economic slowdown. GDP in the third quarter, for example, recorded an increase of 0.1%, the weakest quarterly result since the recession of 0.1% in the last three months of 2024.
The scenario “does not, however, suggest a slowdown sufficiently intense to indicate a recession on the horizon”, estimates André Valério, senior economist at Inter. The financial institution expects this trend to continue throughout the fourth quarter and for GDP to end the year up 2.2%.
As for BC’s interest rate policy, the data opens the door to the start of Selic’s first-quarter downcycle. Valério expects the first decline to take place at the January meeting, given the recent disinflation measured by the IPCA (Broad Consumer Price Index).
Lower interest rates tend to favor variable income, particularly businesses linked to the national economy, such as retailers. On the other hand, the decline of the Selic will reduce the interest rate gap between Brazil and the United States, highlighted by experts as one of the reasons for the appreciation of the real in the foreign exchange market over the last year.
Last week, British Columbia’s Copom (Monetary Policy Committee) chose to keep the Selic rate at 15% per year, the highest level in almost two decades. The communication that accompanied the decision did not indicate which direction the commission should take in future meetings, which sheds light on the meeting minutes, released this morning.
Furthermore, the Report on the monetary policy of the municipality is expected on Thursday. BC President Gabriel Galípolo is expected to give a press interview soon after, and investors will be following the speech for clues about the committee’s next steps.
This week’s agenda also contains data from the United States which could define the direction of the interest rate of the Fed (Federal Reserve, the North American central bank). The payroll employment report is expected on Tuesday, and official inflation figures are expected on Thursday.
The path for U.S. interest rates is open, as Fed Chairman Jerome Powell signaled in a news conference following last week’s decision. The central bank chose to reduce its key rate by 0.25 percentage points, as widely expected, to the range of 3.5% and 3.75%.
Powell said interest rates are “well positioned” to respond to what’s to come and that decisions will be made “meeting by meeting” based on what the economic data indicates.
“I would like to emphasize that after reducing our interest rate by 0.75 percentage points since September and 1.75 points since September last year, the policy rate is now within a wide range of estimates of its neutral value and we are well placed to wait and see how the economy develops,” he said.
This position was seen as positive by markets, which are now watching data and speeches from central bank authorities for clues on next steps. In statements Friday, officials said the Fed could have waited for additional data on inflation and the labor market before cutting rates.
Waiting until early next year, Chicago Fed President Austan Goolsbee said, would have allowed policymakers to benefit from updated government data with next week’s reports, while carrying few additional risks for a labor market that appears to be “cooling only moderately.”
Kansas City Fed President Jeffrey Schmid said interest rate policy should remain modestly restrictive to keep inflation under control.
These statements reinforce the fact that the next macroeconomic publications will be decisive for decisions on short-term interest rates. For now, traders are projecting a 22% chance that a 0.25 percentage point decline will occur at the January meeting, according to the FedWatch tool.
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