As expected, the Central Bank has risen the basic interest rate of the economy, Selic, from 13.25% AA to 14.25% AA is the highest level from the Dilma Rousseff government. In addition to the increase, the monetary policy committee (COPOM) hired another increase, of less magnitude for May. It remains to be seen if the rate goes to 15% AA, as forecast of the Focus Bulletin, or 14.75% AA if the increase will be 0.5 pp or 0.75 pp little matters, since Selic is already in a very restrictive level. With the basic interest rate of 14.25% AA, the cost of credit at the end will inevitably rise, both for consumer and companies, helping to contain inflation by discouraging the economy. There is no doubt that the rate at this level helps to contain the increase in prices. The question is if “could not be smaller in order to cause less damage to the productive sector”? The answer is “yes” as long as the federal government did its part in fiscal policy.
The big major problem is that the Central Bank is strength to control inflation, and the government makes contrary pressure as it grants tax exemptions, raises public spending and sponsors subsidized credit, which operates below Selic. Of course, with this expansionary fiscal policy, the Central Bank has no alternative but to rise interest to control inflation. Selic’s fault is at this level is the lack of fiscal responsibility by the Federal Government, not the Central Bank.
