Majority of investors already betting on a 0.5 percentage point cut in the Selic amid deflation

Economist André Perfeito notes that inflation cores are receding
247 - Following the announcement of a 0.07% deflation in IPCA-15 in July, investors are becoming aware of the possibility of a more aggressive cut in interest rates by the Monetary Policy Committee (Copom) of the Central Bank (BC) in early August.According to data from B3's Copom Option, the platform for interest rate trading on the Brazilian stock exchange, on Tuesday (25), the bets for a 0.50 percentage point cut (p.p) increased to 58%, while the forecast for a 0.25 p.p cut was made by 38% of investors.At the close on Monday (24), the scenario was more evenly divided, with 47% of investors predicting a 0.50 p.p cut, while 45.50% were betting on a reduction of 0.25 p.p.Economist André Perfeito, who already has a projection of a 0.50% rate cut in the August meeting, notes the qualitative improvement of the indicator, with the cores receding, as well as underlying services. "This was one of the issues that worried the market the most, but for now, it's off the economists' table in Faria Lima," he says.According to Perfeito, this data adds to the Boletim Focus released on Tuesday (25), which showed an improvement in projections for 2023, 2024, and 2025, and with IGP-M deepening its deflation. "All of this confirms the SELIC rate cut in the Copom meeting next week. I reiterate my scenario of a 50 basis points cut and a terminal Selic rate of 11.75% by the end of this year."He also points out that "the issue on the table" is not short-term interest rates but long-term rates, which have already fallen significantly and may rise despite a drop in Selic. "I don't think the correction of long-term bond prices will be abrupt, but it seems to me that the market will find an excuse to raise long-term rates a bit, and that excuse could be the lag in gasoline prices," he says."The battle for the short term has been won by the government along with the BC. Now they must win the long term through the Selic statement, and in this case, the responsibility is on the BC to argue, based on their beliefs, the trajectory of Brazilian inflation."