A new interest rate hike is on the financial market’s radar –

The financial market already expects a reversal in the monetary policy of the central bank (BC) from next year. With the uncertainty about the spending volume of the Proposed Amendment to the Constitution (PEC) on Spending, investors believe in a possibility that the monetary authority will raise the basic interest rate (Selic) again.

Analysts from large institutions do not rule out the BC’s resumption of monetary tightening, depending on the text approved by Congress and the amount of expenses that remain above the ceiling.

The PT is trying to reach an agreement to approve the PEC, which initially provides for R$ 198 billion in expenses outside the ceiling, without any compensation on the revenue side or cutting other expenses, which directly impacts the public debt. With high debt, creditors charge higher interest rates, inflation prospects rise and the dollar tends to rise.

BC president Roberto Campos Neto showed caution when analyzing the country’s situation, but was clear when assessing that “fiscal uncertainty” represents an “important weight” in the economic scenario. “It is necessary to equate the social need, but also to generate a fiscal balance”, highlighted the leader during an event on Wednesday 23rd. He signaled that the new government needs to maintain a sustainable trajectory of the public debt.

Campos Neto, however, avoided making speculations about the PEC. “It is important for us to see what will come out, what does that mean in terms of the debt trajectory, and, obviously, it is part of the Central Bank’s function to react”, he declared. He also pointed out that the BC’s independence will undergo a test in the new government. “Independence is very recent. It is not complete autonomy, but I think it will be tested now, ”he evaluated.

For analysts, the risk of an increase in the basic interest rate is proportional to the amount of expenses without coverage that are approved for 2023 and the following years.

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