Financial market expectations for the IPCA (Broad National Consumer Price Index) in 2025 they will already approach the tolerance margin of the inflation target. Despite this, the BC (Banco Central) maintains the Selicbasic interest rate in Brazil, at a high level: 15% per year.
Even with the reduction in inflation expectations, the Copom (Monetary Policy Committee) of the BC There is still one more meeting of the collegiate this year, in December, but the market expects the interest rate to fall only in 2026.
Experts consulted by CNN Brazil point out the contradiction of monetary policy remaining restrictive even with one of its main fundamentals indicating the opposite — if inflation moves towards the target and growth remains moderate, maintaining high interest rates would no longer be a control tool and so much so that some investment houses project that inflation will be below tolerance this year.
“The big reason is the strong slowdown in food prices, we think there will be a surprise in these prices. Another reason is the exchange rate, we predict that the more appreciated real could reduce the prices of imported items”, said Warren Rena’s inflation strategist, Andréa Angelo.
The most recent Focus Bulletin, which measures the mood of economists and investors, showed that the center of the inflation target is 3%, with a tolerance margin of 1.5 percentage points.
For former BC president Armínio Fraga, despite the drop in prices, structural conditions of the Brazilian economy prevent the collegiate from starting to reduce interest rates immediately. The economist points to the lack of control over public accounts as the biggest villain.
“With this fiscal policy horizon, the interest rate cut would be a surprise this year. Interest rates do not fall due to uncertainty, fear. The fiscal part is off track. The basic thing would be to start with a fiscal policy that makes the debt stabilize,” he said.
Impact on the economy
Interest is the remedy for high prices in an economy. By making credit more expensive and curbing consumption and investment, they reduce demand and, consequently, the pressure on inflation.
The side effect, however, is the damage to economic activity. Practically all productive sectors are negatively impacted by Selic at a restrictive level, while there is a disincentive to consumption and investment. Among the segments, one of those that suffers most is industry.
“In reality, the interest rate at this level for a prolonged period is bad for the economy as a whole, but especially for the industry. The industry depends on consistent investment, which does not exist in the context of high interest rates”, said João Gabriel Pio, economist at Fiemg (Federation of Industries of the State of Minas Gerais).
In a position, Firjan (Federation of Industries of the State of Rio de Janeiro) reiterated the damage to the industry and called for the Selic to be lowered, shortly after the Copom’s decision to maintain the rate at 15% per year. For the cut to occur, the entity defended the balance of public accounts.
“Given the country’s current economic scenario, with a 0.4% decline in industrial production in September, reflecting the impact of more expensive credit and an economic environment that is not very favorable to investment, Firjan argues that a sustainable reduction in interest rates depends on a more predictable macroeconomic environment that is conducive to investment.”
