On Wednesday (02/08), the Central Bank Monetary Policy Committee (Copom) announced the first interest rate cut since August 2020. The committee reduced the country’s basic interest rate (Selic) by 0.5 percentage points — from 13.75% to 13.25% per year. The BC collegiate anticipated that it foresees a new cut of 0.5 percentage points in the next meeting, in September, and of the same intensity in the following meetings. The news may represent a new phase of improving relations between the government and the monetary authority. Since President Lula took office, he has criticized the Central Bank, particularly its president – who was appointed during his political rival’s mandate – for maintaining Selic quite high, which was hampering the government’s plan for economic development.
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Government’s Request
The movement made by the collegiate corresponded for the first time to the appeals of the Lula government, which had been pressuring the BC for a 0.5 percentage point cut in the Selic rate.
Copom’s decision came amid persistent criticism by President Luiz Inácio Lula da Silva (PT) and members of the federal government of the current Selic level. The assessment is that the index has inhibited economic growth.
Relief for the Government
The Selic rate cut cycle started this week by the Central Bank will generate savings in public debt interest expenses and allow for a smaller growth in the Brazilian public debt.
The reduction in expenses will happen because more than 40% of the Brazilian debt in public securities, which totaled R$ 6.19 trillion in June this year, is linked to the economy’s basic interest.
Improving the Relationships
On Wednesday (02/08), Finance Minister Fernando Haddad said that the drop in the Selic rate will help the sustainable development and made positive comments about Central Bank President Roberto Campos Neto. Haddad said that Neto’s decision to vote in favor of reducing the Selic rate (…) was “(…) a technical position, not a concession to the government.”
Source: Folha de SP; G1 [1], [2].
