The Selic at 3.75% at the peak of fear — when the lowest rate brings no relief

Article

The extreme

Cutting rates is usually a gesture of relief: cheaper money to stimulate those who produce and consume. In March 2020 the Central Bank took the Selic to the lowest level in its history — and there was nothing relieved about the market. Money had never been so cheap in the exact month when no one wanted to take on risk. In numbers: the Selic at 3.75% a year, with the month's IPCA practically frozen at 0.07%; the dollar at R$4.8839, a move the engine flagged as a statistical anomaly; and domestic mood scraping the floor of the scale, from 4.1 to 2.6.

What happened next

The low rate did not buy confidence. In the same month, institutional flow reversed toward an exit from risk and the banks were discarded with conviction — Financials/IBOV fell to a z of -1.91, the signature of a scare that the market fears could turn into a credit problem. Cheap money and maximum fear lived side by side. The cut eased the cost of capital; it did not return the willingness to carry it.

What did not happen

The Selic at its historic low did not signal normality — it signaled emergency. And the panic did not come from prices: with the IPCA at 0.07%, inflation was near zero, far from justifying the fear. Nor did the cut align the board: the broad Brazilian regime still marked risk-on at 56.8 while mood collapsed. Rates on the floor and the regime still standing at the same time.

The honest verdict

The lowest rate is a tool, not a cure. In March 2020 it reduced the cost of money without reducing the fear — and the month itself closed without the stability that would allow the regime to be classified with confidence. The lowest rate in history was not a sign of calm; it was the measure of the size of the scare.

Continue reading: March 2020 was the bottom · The turn of April 2020 · The first rate cut →

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