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Selic at 14.25% and 3.75%: the rate that did not rule the mood

Article

The extreme

Between 2015 and 2020, the price of money in Brazil traveled to the two extremes of its recent history — and, at both ends, market mood ignored the rate table. In August 2015 the Selic sat pinned at the ceiling of a tightening cycle, high enough to choke any economy, and yet the appetite for domestic risk touched the absolute floor of the scale. In March 2020 the rate plunged to the lowest level ever seen, and fear, instead of retreating in the face of cheap credit, turned into a sell-off. Two opposite prices of money, the same reading of aversion.

In numbers: August/2015 — Selic 14.25% a year, IPCA of 0.22% for the month, Perene Risk Index at 0.0, dollar at R$ 3.5143. March/2020 — Selic 3.75%, IPCA of 0.07%, dollar at R$ 4.8839 (a statistical anomaly) and the index climbing from 0.0 to 10.6, but on the way out of risk.

What happened next

In 2015, the rate at its limit anchored none of what it was supposed to. The dollar did not stop rising, public debt held to a rare deviation at 62.97% of GDP, and the intermarket system shrank from 21.32 to 14.64 — flight from the cycle, not the return of confidence. The monetary remedy was already at full dose, and the patient was not responding. In 2020, the cut came alongside the abyss: domestic mood, measured by the Ânima, fell from 4.1 to 2.6, scraping the floor, while the cheap rate did not buy a single buyer. The difference was speed — Brazil's broad structure still marked risk-on at 56.8, lagging the panic that had already seized sentiment.

What did not happen

In neither month did the price of money command the mood. The Selic at 14.25% did not contain the fear; the Selic at 3.75% did not dispel it. Anyone expecting a high rate to support the real, or a low rate to ignite the appetite for risk, was reading the board through the wrong variable. The cost of money moved from one extreme to the other; the aversion did not.

The honest verdict

The level of the Selic says little about the mood of a month of stress — in 2015 and in 2020, it was fear, not the rate, that dictated the reading. But honesty demands a limit: March/2020 closed without the stability that would allow classifying the regime with confidence, and comparing two panics of distinct origins — fiscal in one case, sanitary in the other — explains less than it seems. The rate did not rule the mood; nor did it substitute for it as a cause.

Continue the story: The Selic as a piece of the regime · The first rate cut · What is left when fear prices everything in →

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Characters: Structure (intermarket) · Flow (risk appetite) · Dollar · Cyclicals × defensives