The Monetary Policy Committee (Copom) of the Central Bank (BC) decided this Wednesday (8) to reduce the Selic, the basic interest rate for the Brazilian economy, from 10.75% per year to 10.50% per year. The 0.25 point cut was smaller than the last six reductions and what was expected by the government of President Luiz Inácio Lula da Silva (PT). It reinforced the influence of Roberto Campos Neto, president of the BC appointed by Jair Bolsonaro (PL), on the national economy.
In recent weeks, Campos Neto had given signs that the Selic rate would fall by less than 0.5 percentage points. According to him, Brazil would once again be at risk of rising inflation due to the drop in unemployment.
According to Campos Neto, with fewer people looking for work, companies are having difficulty hiring. They are then being forced to offer higher wages. This would tend to increase production costs and, ultimately, prices, causing inflation.
Campos Neto said that the solution to the “problem” would be to reduce the rate of interest rate declines. The economy would tend to grow at a slower pace, also slowing the fall in unemployment. This would all reduce demand for purchases and inflationary pressure.
The issue is that this tends to occur at the expense of the worker, who has so far not even recovered pre-pandemic income.
According to the Brazilian Institute of Geography and Statistics (IBGE), in mid-2020, the Brazilian worker received, on average, around R$3,210. This value dropped to around R$2,750 at the end of 2021. Since then, it has risen more than 13% and reached R$3,120. Still, it is approximately 2.8% lower than four years ago.
IBGE data indicate partial recovery of Brazilian worker income / Reproduction/IBGE
Banks pressure
The banks had also already positioned themselves in line with Campos Neto’s speech. So much so that they were already betting on a 0.25 point cut in the Selic this Wednesday. The forecast is recorded in the Focus Bulletin, released by the BC on Monday (6).
Considering Campos Neto’s statements, they also raised their expectations to the Selic level at the end of this year. Their most current forecast is that the rate will close 2024 at 9.63% per year. Four weeks ago, they predicted 9% per year.
According to Róber Iturriet Ávila, economist and professor at the Federal University of Rio Grande do Sul (UFRGS), the simple change in banks’ forecasts influences the Copom and causes the body to tend to align itself with bankers.
“The Focus Bulletin is taken into account in the Copom’s decision, because the Copom is largely based on expectations”, he explained.
For Weslley Cantelmo, economist and president of the Economics and Planning Institute, the banks’ vision is linked to the ideological way in which they analyze the economy. Their vision, however, ends up dominating the public debate on economics.
“The banks are creating an environment in public opinion and this legitimizes the Copom’s decision [por um corte menor]”, he stated.
Data against the grain
For Cantelmo, there is no justification for a 0.25 point cut in the Selic. André Roncaglia, economist and professor at the Federal University of São Paulo (Unifesp), confirms.
“The Brazilian economy is growing, the unemployment rate is growing again [no início do ano] and inflation is falling”, said Roncaglia.
He remembers that banks do not deny these facts. Although they estimate a higher Selic, they reduced their forecast for inflation this year and increased their forecast for Gross Domestic Product (GDP) growth in the latest Focus Bulletin.
These economists estimate that the IPCA will close the year at 3.71%. Four weeks ago, the forecast was 3.76%. At the beginning of 2024, it was 3.90%.
The estimate for 2024 is within the range of the inflation target defined by the National Monetary Council (CMN). The target is 3% for this year, with a tolerance range of 1.5 percentage points up or down. That is, up to 4.5%.
Economists’ most current forecast for growth is 2.05%. Four weeks ago, it was 1.90%. At the beginning of the year, they estimated growth of 1.52%.
The federal government estimates that the national economy will grow 2.2% in 2024.
What is Selic?
The Selic rate is a reference for the national economy. It is also the main instrument available to the BC to control inflation in the country.
When it rises, loans and financing tend to become more expensive. This discourages purchases and investments, which contains inflation. On the other hand, economic growth tends to be hampered.
When the Selic falls, the interest charged to consumers and companies becomes lower. There are more people buying and investing. The economy grows, creating jobs and promoting salary increases. Prices, in turn, tend to increase due to demand.
Since taking office, President Lula has defended a reduction in the Selic rate. For him, if it starts to fall more slowly, Campos Neto could be to blame for lower growth.
Editing: Nicolau Soares
