Dollar rises after Copom decision: Understand the impact of the currency’s rise
The dollar closed higher this Thursday (9), reflecting the Copom's decision on the Selic basic interest rate and the market's fears regarding the collegiate's profile. The divided decision to cut the Selic by 25 basis points, to 10.50% per year, raised concerns about possible changes in the conduct of monetary policy, especially given the uncertain international and domestic scenario.
Copom decision and its effects
The Copom's decision, with a tight score of 5 votes to 4, signaled a slowdown in the pace of Selic cuts. This generated speculation about the future of economic policy, considering the composition of the board and the political appointments planned for the Central Bank.
The Copom's decision to slow down the rate of Selic rate cuts could have several consequences for the Brazilian economy:
- Impact on interest rates : With the slowdown in the Selic rate cut, interest rates may remain at higher levels for longer, which may affect consumption and investment, as loans and financing tend to become more expensive.
- Inflation : A higher Selic can help contain inflation, as higher interest rates can discourage consumption and control prices. However, this measure could also harm economic growth.
- Exchange rate : The Copom's decision could also impact the exchange rate, as higher interest rates tend to attract foreign investors in search of higher yields, which could increase the value of the Real. However, this appreciation could harm Brazilian exports.
- Investments : The decision could influence investments in the country, as higher interest rates could make financial investments more attractive in relation to productive investments.
- Market confidence : The Copom decision could also affect the confidence of economic agents in the country. A decision that indicates greater caution could generate uncertainty about the government's ability to deal with the economy.
The assessment of whether the Copom's decision was correct or not depends on the point of view and the economic objectives considered. Some arguments for and against can be raised:
In favor:
- Inflation control: With the slowdown in the Selic rate cut, the Copom signals concern about keeping inflation under control, which is one of the main objectives of monetary policy.
- Economic stability: A more cautious monetary policy can contribute to economic stability, avoiding sudden movements that could negatively impact several sectors.
- Predictability: The decision may bring more predictability to economic agents, as it indicates a more conservative stance by the Central Bank in relation to interest rates.
Against:
- Impact on economic activity: Higher interest rates tend to discourage consumption and investment, which could harm economic recovery, especially in times of challenges such as post-pandemic.
- Appreciated exchange rate: Maintaining interest rates at higher levels can attract foreign capital flows, increasing the value of the Real and harming Brazilian exports.
- Social inequality: Maintaining high interest rates can make access to credit difficult and negatively impact the poorest, who tend to be more sensitive to changes in interest rates.
The Copom's decision may be considered correct by some as it prioritizes inflation control and economic stability, but it may also be questioned by others due to possible negative impacts on economic activity and social inequality.
Impact on the foreign exchange market
The spot dollar closed up 1.01%, quoted at R$5.142 for purchase and sale. The dollar futures contract also registered an increase of 1.09%, reaching 5,151 points. These movements reflect uncertainties and the search for protection on the part of investors.
Political scenario and market interference
Fears of greater "political interference" increased due to President Lula's nominees, who advocated a more aggressive interest rate cut. With the majority of Central Bank directors appointed by Lula from 2025, there are concerns about the BC's autonomy and the possibility of a more expansionary monetary policy.
Future perspectives
From January 2025, those appointed by Lula will be the majority on the BC board, which could influence the conduct of economic policy. For some analysts, this could mean a BC more inclined to expansionary monetary policies, which would directly impact inflation and the exchange rate.
Concluding
The rise in the dollar after the Copom decision reflects the market's uncertainty regarding the future of economic policy and the profile of the Central Bank. The composition of the board from 2025 onwards and political appointments raise concerns about the BC's autonomy and its future decisions.
