The chief minister of the Civil House, Rui Costa, did not spare criticism of the Central Bank and its president, Roberto Campos Neto, after the maintenance of Selic, the basic interest rate, at 13.75% per year. To the vehicles of Brazil Communication Company (EBC) On the night of this Wednesday (22), Costa called the result of the Monetary Policy Committee (Copom) meeting “insensitive”.
“This insensitivity of the Central Bank only increases unemployment and increases the suffering of the Brazilian people. It is not possible to understand this decision by the Central Bank”, criticized the minister. “When the interest rate drops, it becomes easier for people to consume, it becomes easier for businessmen to invest in agriculture, commerce, industry,” he added.
Costa stated that it was not just the government that expected and wanted a reduction in the Selic, but also “what do the Brazilian people expect” and questioned the reasons for maintaining a rate initially adopted in times of inflation at the 10% level. The latest inflation data closed at 5.6% in the accumulated 12 months. “How do you maintain the same bitter dosage of medicine when inflation has already dropped by half? Today, interest rates in Brazil are the highest in the world. Nothing can be explained, there is no economic reason, except another motivation, I don’t know what it is”.
Central Bank autonomy
Today’s Copom decision also provoked new questions from the Chief of Staff regarding the Central Bank’s autonomy. For Costa, the issue should be debated by federal deputies and senators.
“I think that the National Congress, which is the home of the Brazilian people, needs to discuss this seriously. An independent Central Bank cannot be independent of the people and an ally of those who charge interest at the heights. I think Congress needs to reflect. This stubbornness and disservice that the president of the Central Bank is doing to the Brazilian people is unsustainable”.
Central Bank autonomy came into force in February 2021, after being approved by the National Congress and sanctioned by the government. The main change of the Central Bank independence law is the adoption of 4-year terms for the president and directors of the federal autarchy. These mandates will occur in cycles that do not coincide with the term of office of the President of the Republic.
The rate remains at the highest level since January 2017, when it was also at 13.75% per annum. This was the fifth time in a row that the Central Bank did not change the rate, which has remained at this level since August last year. Previously, the Copom raised the Selic rate 12 times in a row, in a cycle that began amid rising food, energy and fuel prices.
Raising the Selic rate helps to control inflation. This is because higher interest rates make credit more expensive and discourage production and consumption. On the other hand, by reducing basic interest rates, Copom makes credit cheaper and encourages production and consumption, but weakens inflation control. To cut the Selic, the monetary authority needs to be sure that prices are under control and are not at risk of rising.