Copom’s decision was unanimous; it is the first increase in Lula’s third term and the first meeting of Galípolo nominated for president of the Central Bank
Market entities, such as Firjan (Federation of Industries of the State of Rio de Janeiro), CNC (National Confederation of Trade in Goods, Services and Tourism) and the CNI (National Confederation of Industry) took a position on the decision of the BC (Central Bank of Brazil) this 4th fair (18.Sep.2024) to raise the Selic (basic interest rate) to 10.75% per year.
It is the first time that the monetary authority has raised the basic interest rate since August 2022, being the first increase in the president’s third term Luiz Inacio Lula da Silva (PT). The result followed the expectations of financial market agents and entities. The minutes of the meeting of the Copom (Monetary Policy Committee) in July said that the body would not see a problem in increasing the rate if it considered it necessary.
The Selic is the basic interest rate of the Brazilian economy. It directly influences the rates that will be charged on loans, financing and investments. In the financial market, it impacts the return on investments.
Read the entities’ statements below:
- Firjan – considers “hasty” the decision to increase the basic interest rate. “The current situation demands attention, but the inflationary risk is still unclear. Furthermore, the high interest rate has been compromising strategic sectors, especially industry, and undermining any possibility of increasing the country’s investment rate. The industrial sector, although it has shown a timid recovery in recent months, is still operating 15% below its historical high, recorded in May 2011.” He also stated that “It is not enough to meet short-term fiscal targets with extraordinary revenues. It is necessary to plan the rebalancing of the debt/GDP ratio in the long term, through a credible spending control agenda. This path will promote an improvement in the perception of risk regarding the Brazilian economy, opening space for a sustained drop in interest rates and contributing to sustainable long-term economic growth” entities
- CNC – says that “is concerned about this increase, although it understands that the Central Bank is acting responsibly in light of the fiscal situation and inflationary pressures. However, the increase in interest rates increases the cost of capital for companies, makes access to financing more difficult and makes credit more expensive for consumers. These effects tend to negatively impact economic activity, especially trade and tourism, sectors that depend heavily on credit, especially for higher-value products.”
- CNI – according to Ricardo Alban, president of CNI, “The current and prospective economic scenarios, especially regarding inflation, show that an increase in the Selic rate would be wrong and excessively conservative on the part of the monetary authority, with negative and unnecessary consequences for economic activity. Furthermore, it would put Brazil in the opposite direction of what the world is doing at the moment, which is reducing interest rates.”
- CUT (United Workers’ Central) – the vice-president of CUT, Juvandia Moreira, stated that the BC practices “a true policy of boycotting the economy”. “In 2023 alone, the Union paid more than R$732 billion in interest on bonds. The amount is equivalent to 4.3 times the investments in Bolsa Família”, says the entity. “The Selic rate influences the interest rates charged throughout the country’s financial system, therefore, an increase in the base rate is reflected in an increase in the population’s cost of living, an increase in the cost of developing companies and, therefore, harms job creation.”
- ACSP (São Paulo Commercial Association) – according to the economist from the Gastão Vidigal Institute of Economics, ACSP, Ulisses Ruiz de Gamboa, “the decision to increase the Selic rate took into account resilient inflation, above the annual target, in a context of still buoyant economic activity and a job market”. “This gradual increase may have been influenced both by the deflation of the IPCA in August and by the reduction in basic US interest rates, which could mitigate, at least in part, the exchange rate depreciation,” added the economist.
Read the financial market statements below:
- Asset Management Matrix – investment manager and partner at the asset management firm, Luiz Rogé, states that “the most important detail is the issue of inflation asymmetry and the beginning of an upward cycle, in which there will be more increases, that is, it was not just one increase and that’s it”. “It is clear that more increases will follow. However, the Central Bank does not want to anticipate and does not say what the pace of these adjustments will be or what the total magnitude of this upward cycle will be. But they will be dictated, as it always says, by the Central Bank’s commitment to trying to bring inflation closer to the target and will depend, basically, on economic conditions and on the evolution and dynamics of both inflation and other components, such as economic activity, among others,” says Rogé.
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