Brazilian government reduces the basic interest rate (Selic) to 13.25%

The reduction of 0.5 percentage points in the economy's basic interest rate announced this Wednesday, August 2, by the Brazilian Central Bank's Monetary Policy Committee (Copom) was celebrated by members of the President Luiz Inácio Lula da Silva (Workers' Party) administration.

With the reduction, the so-called Selic rate dropped to 13.25% per year – the same level as in August 2022. It is still the highest real basic interest rate of any economy in the world.

:: Copom reduz Selic em 0,5 ponto após três anos ::

For the Minister of Finance, Fernando Haddad (Workers' Party), however, its reduction paves the way for this scenario to change over the months. This, according to him, should facilitate the growth of the economy and the balance of public accounts.

With the drop in the Selic rate, government spending on interest rates decreases. Interest on financing and loans also tend to drop, stimulating consumption and investments.

"The 0.50% cut in the basic interest rate signals that we are in the right direction. An advance towards sustainable economic growth for all", declared Haddad, minutes after the announcement of the rate drop.

He also said that companies, consumers and investors will start to re-plan based on the cut announced this Wednesday. He stressed that there are still "major challenges ahead" for the improvement of the national economy.

REDUÇÃO DA TAXA DE JUROS | "Tenho certeza que o presidente do Banco Central votou com aquilo que ele conhece de economia. É um voto técnico, à luz de tudo que ele conhece da realidade do país", afirmou ?@Haddad_Fernando?, ao comemorar o primeiro corte da Selic em 3 anos. pic.twitter.com/1x4O2C6e0Y

— CanalGov (@canalgov) August 2, 2023

"I'm sure that the president of the Central Bank voted with what he knows about economics. It is a technical vote, in light of everything he knows about the country's reality", @Haddad_Fernando said, celebrating the first Selic cut in 3 years.

The Minister of Institutional Relations, Alexandre Padilha (Workers' Party), also used social media to celebrate the drop in interest rates.

O JUROS CAIU!
Durante todo o primeiro semestre, o governo @lulaoficial, o Congresso Nacional e a sociedade criaram todas as condições para que hoje o COPOM concretizasse essa redução da SELIC em 0,5%. Mais um importante passo para a economia brasileira. pic.twitter.com/LhaWbcVyxl

— Alexandre Padilha (@padilhando) August 2, 2023

"THE INTEREST RATE IS LOWER! During the entire first semester, the @lulaoficial government, the National Congress and society created all the conditions for COPOM to implement this 0.5% SELIC reduction today. Another important step for the Brazilian economy."

More cuts

The president of the Workers' Party, federal deputy Gleisi Hoffmann, said that the cut does not change the fact that Brazil has the highest basic interest rate in the world. She also complained about what she called the "Bolsonarist management" of the Brazilian Central Bank, chaired by Roberto Campos Neto.

O corte de meio ponto na taxa Selic não muda o fato de q o BC segue impondo ao Brasil a maior taxa de juros do planeta. Já era pra ter reduzido a Selic, substancialmente, há muito tempo. Estamos pagando um preço muito alto pela atuação política do bolsonarista Campos Neto no BC.…

— Gleisi Hoffmann (@gleisi) August 2, 2023

"The cut of half a point in the Selic rate does not change the fact that the Central Bank continues to impose the highest interest rate on the planet on Brazil. It should have reduced the Selic substantially a long time ago. We are paying a very high price for Campos Neto's bolsonarist political activity in the Central Bank"

Pedro Faria, economist and researcher at the Center for Development and Regional Planning at the Faculty of Economic Sciences (Cedeplar) at the Federal University of Minas Gerais (UFMG), observed that the Central Bank of Brazil statement on the drop in interest rates indicates that it will maintain a "contractionary" monetary policy, since market expectations still point to above-target inflation. This indicates that interest rates should remain high, which is not good for the country's economy, according to him.

:: Entenda a disputa entre Lula e o Banco Central ::

"This is extremely problematic," he said. "The Central Bank is underestimating the idle capacity of the national economy when making this indication."

Economist Miguel de Oliveira, executive director of the National Association of Finance, Administration and Accounting Executives (Anefac), ratified that the country's economic indicators put pressure on the Copom for a Selic reduction. He said that the levels of unemployment and economic activity reinforce that the cut is still insufficient.

"The reduction was a correct measure and was already expected," he said. "Now, we need to see if it continues, because this cut is insufficient. I imagine that new cuts will come ahead."