Copom kicks off its meeting on Tuesday (3) to set the Selic rate, with a decision coming on Wednesday (4). According to Marcela Kawauti, chief economist at Lifetime, the rate cut is happening now; what remains open is December, which will determine how long high interest rates continue to weigh on your cash and the stock market.
Will Copom Cut the Selic Rate at This Meeting?
Yes, according to Marcela Kawauti, in an interview with Money Times: "I believe it will cut rates now, because that is already priced in." When something is "priced in," it means the market has already factored the reduction into asset prices. The decision itself, therefore, should not be the surprise of the week.
The Monetary Policy Committee, the central bank's Copom, meets on Tuesday and Wednesday. Analysts are focusing less on the cut itself and more on the tone the central bank adopts regarding what comes next, because that tone drives future interest rates, foreign exchange, and the stock market in the following days.
The sources we received do not report the current level of the Selic rate or the expected size of the cut, which is why we have not included those numbers here. To check the current rate and the date of the next meeting, visit the Selic page.
Why Is December in Doubt?
Because three variables are pushing projected inflation upward at the same time. According to Kawauti, the combination of fiscal deterioration, stronger demand stimulus, and a higher dollar puts pressure on the inflation projected by the Central Bank, thereby limiting the room to cut interest rates.
"I don't think this closes the cycle, but it truly acts as a limiter."Marcela Kawauti, chief economist at Lifetime, speaking to Money Times
There is a concrete mechanism behind this. The Central Bank's models use market expectations for inflation and exchange rates, and, according to the economist, these expectations will incorporate the revised scenario throughout this week. She sees this shift reaching the Central Bank's projections as early as this meeting. If expectations continue to worsen, the Central Bank may run out of room to make the final rate reduction of the year.
- The slowdown in economic activity opens the door to lower interest rates, in Kawauti's view.
- The depreciation of the real could counterbalance this effect and keep projected inflation higher.
- The deterioration of inflation expectations strips the Central Bank of the justification to keep cutting rates.
- The fiscal deterioration and stronger demand stimulus reinforce price pressures.
This is the score she describes: one force favoring a rate cut against three that limit it. How does this tug-of-war affect an investor's portfolio? That is covered next.
What Changes for Fixed Income and Stock Investors?
The outlook points to high interest rates for longer. For cash positions and floating-rate fixed income, this keeps returns attractive while the downward cycle remains under watch: the rate cut gradually reduces yields without crashing them. For those watching rate levels, it is worth reviewing how the market has been repricing future interest rates, as we showed in our coverage of the spike in DI rates during the first post-election week.
In the stock market, the effect is one of caution. Persistently high interest rates increase the cost of capital and reduce the appetite for risk assets. During our Tuesday market roundup, the Ibovespa fell 0.75% to 167,921.80 points, as the market awaited the outcome of the meeting and kept an eye on the fiscal landscape.
If you hold money in cash or floating-rate fixed income, this week's cut should not change your day-to-day routine: yields remain high, just slightly lower. The decision that could impact your planning is the one in December. Anyone counting on a sharper drop in interest rates to boost stocks or real estate should treat that scenario as uncertain rather than guaranteed.
If the December Cut Doesn't Happen, Is the Cycle Over?
No, according to the economist: she states that the current scenario does not end the cycle, but rather acts as a limiter. The distinction matters: a limited cycle can proceed with smaller or more spaced-out rate cuts, whereas a concluded cycle would mean the Selic rate remains on hold.
The U.S. dollar is one of the three pieces of this equation. Readers who want to track it daily can find the exchange rate and fair value on the dollar page. The fiscal backdrop is also a familiar one: economist Gustavo Loyola had previously issued a fiscal warning regarding double-digit Selic rates, which helps explain why the risk of prolonged high interest rates has been discussed for weeks.
In short: Marcela Kawauti, of Lifetime, expects Wednesday's rate cut because it is already priced in. What she sees as open-ended is December, which depends on fiscal policy, the dollar, and inflation expectations. Until then, the rule of thumb remains the same: treat high interest rates as the baseline scenario, and any larger decline as a bonus rather than a plan.
