After the closure of three US banks in recent days, Brazilian experts are evaluating how this can accelerate or prevent the fall in interest rates in Brazil.
Maintained at 13.75% by the Central Bank, the basic interest rate – Selic, will be debated at the Monetary Policy Committee (Copom) meeting next week.
Economics professor André Roncaglia explains that the failure of US banks Silicon Valley, Silvergate and Signature was predictable, precisely because of the acceleration of US interest rates.
Now, the Central Bank of the United States is forced to rethink this position, which should also happen in Brazil.
“The US central bank [FED] will play a strong role in guaranteeing the deposits of customers of these banks and, as a result, should review its position on raising interest rates, as already foreseen at the last meeting. The American central bank raising interest rates less, or slowing down this process of monetary normalization of the American economy, implies, for Brazil, a greater space for the Brazilian Central Bank to initiate, or anticipate, the process of cutting interest rates and do it even more quickly.”
Still according to Roncaglia, the FED must act to contain financial risks, which should happen with the decision of the Brazilian Central Bank. In the expert’s view, if this happens it could have effects that favor Brazil’s growth.
“The effect of this could be exactly to reactivate the engines of the economy in a more sustainable way and this could help the country to grow more this year and expand quality employability, improve the indicators of economic activity that have already been slowing down. All of these effects are very positive.”
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William Baghdassarian, also a professor of economics, sees it differently. For him, events of this type call into question the effectiveness of economic protection policies by the monetary authorities. Therefore, he believes that the Brazilian Central Bank has less incentive to reduce the national interest rate, depending on how the situation unfolds.
“If by chance we find out that other banks also have a liquidity problem and that they will need the intervention of the US government or other governments to resolve the issue, then that may cause uncertainty to remain higher. That will have an effect on the exchange rate – on the dollar –, which will have an effect on cost inflation, which may make the Central Bank have less incentive to seek to reduce interest rates.”
For Baghdassarian, bank failures could also have an impact on inflation and the exchange rate, which may be uninviting for emerging countries like Brazil.
“Every time we have an increase in international uncertainty, emerging markets end up suffering, because foreign investors pull resources from these markets to cover losses in the main markets, which means that there is pressure on the exchange rate and, with this, you end up also having the effect of inflation on the economies.”
After the closure of the mentioned banks, the Brazilian Minister of Finance, Fernando Haddad, considered the situation serious, but sees conditions to make possible the reduction in the interest rate in Brazil.
