This Content Is Only For Subscribers
To unlock this content, subscribe to INTERLIRA Reports.
Despite the strong political pressure by members of the Luiz Inácio Lula da Silva (PT) government and even representatives of industry and other sectors of the national economy, the Central Bank’s Monetary Policy Committee (Copom) maintained the Brazilian basic interest rate (Selic) at 13.75% per year. Due to this decision, Brazil continues to lead the global ranking of real interest rates.
No Signs of Relief
The decision was announced on Wednesday (22/03), and it was not a surprise for market analysts. However, the authorities did not give any signs that it intends to bring forward the rate cut in the future, and it even said that it could eventually raise Selic again if the disinflation process does not go as expected. This brought concern to the market, which was expecting signs of improvement in the future.
Reasons
Among the reasons to maintain the current rate, the Central Bank mentioned the market inflation expectations, which have been moving away from the defined targets. In the latest released projections, the estimate for 2024 – the main target for the projections – rose from 4.02% to 4.11%, far from BC’s target (3%).
The monetary authority also drew attention to the uncertainty about the new fiscal rule and its impact on the public debt but praised the partial reimplementation of the fuel taxes, which would have brought more stability. Finally, the BC mentions the adverse conditions the international financial system, referring to the banking crisis abroad, and a slowdown in the granting of credit in Brazil, as factors that may count in favor of a relief in interest rates.
Critics
Finance Minister Fernando Haddad (PT) considered the announcement “very worrying”. Among businessmen, the sign that the Selic will remain at the current level at the next meeting raised an alert. Trade unions, some connected to the current government, also criticized Copom’s decision to maintain the basic interest rate at 13.75% per year.
Protest
On Tuesday (21/03), the Unified Workers’ Central (CUT), the General Workers’ Union (UGT), the Sinfical Power (Força Sindical), the Commerce Workers Union of São Paulo protested in front of the BC building in São Paulo, on Avenida Paulista. They are against the Central Bank Monetary Policy. Protesters asked for Roberto Campos Neto to resign. He is seen as an ally of former President Jair Bolsonaro, thus part of the opposition. The unions and even the government claim that he is acting against the current administration.
Pressure to Quit
Copom’s decision went against Lula, accelerating a strategy that was being planned as a defense by sectors of the PT: pressing for Campos Neto’s departure. As the BC president has autonomy, and a predetermined four years mandate, which ends in 2024, in theory, the government could only hope for Neto to leave, a thing which he has already informed that he will not do. Thus, at this point, there is only one alternative, his dismissal through the Federal Senate.
If Campos Neto performs insufficiently to achieve the BC’s objectives, he may be dismissed following a decision by the President of the Republic, but the decision needs the approval of the Federal Senate.
No Support in the Senate
Even with pressure from President Lula, senators rule out an offensive against Neto and demand that the government send the new fiscal framework to reduce interest rates.
