After meeting for nearly three hours, the Brazilian Central Bank's Monetary
Policy Committee (Copom) decided unanimously, and for the second straight
time this year, to maintain the prime interest rate (Selic) at 16.5 percent
per year, without bias. This means that the rate will remain unchanged for
the next 30 days.
This time the Copom chose
just to announce the rate, without any additional observations on the reasons
for the decision. The Bank's justification will be spelled out in the Copom's
minutes, which should be released next Thursday (26).
After analyzing the country's
macroeconomic indicators, especially the data on inflation, the president
of the Bank, Henrique Meirelles, and the other eight Bank directors who form
the committee decided not to tamper with the Selic (Sistema Especial de Liquidação
e Custódia), Brazil's basic interest rate.
The decision did not surprise
the financial market. Most analysts already expected the Selic to be maintained,
after the Copom decided last month to interrupt the succession of interest
rate cuts. Between May and December, 2003, the Selic was reduced from an annual
rate of 26.5 percent to 16.5 percent, a cumulative decline of 10 percent last
Even though it was expected
by the majority of economists, the result did not please the productive sector.
The National Industrial Confederation (CNI), for example, regarded the maintenance
of the Selic at 16.5 percent as "frustrating." According to CNI
president Armando Monteiro Neto, the decision "acts in a negative way
on the expectations of economic actors, and this will affect investment decisions."
For Monteiro Neto, the
Central Bank overestimated the seasonal and temporary inflationary pressures
that occurred at the beginning of the year. According to the CNI, the Brazilian
economy has been presenting a picture of improvementa fall in the Brazil
risk premium, an exchange rate with the dollar under R$ 3.00, and expectations
that inflation will be under control for the next 12 months. Moreover, the
international scenario is "very positive" at the moment, which would
justify an interest rate reduction.
The Workers' Central Union
(CUT) also criticized the Central Bank's decision to hold the prime interest
rate at 16.5 percent per year. "Maintaining the same interest rate level
as in January means jeopardizing all the growth targets and continuing to
sacrifice workers and reward only those who have been getting rich off high
interest rates," the note affirms.
The message was directed
at the financial system, which, according to the CUT, obtained "astronomical"
profits in 2003. In the note the CUT recalls the promise made by President
Luiz Inácio Lula da Silva, who referred to the "growth spectacle,"
growth that is imperiled if the Copom continues to bet conservatively and
believe that "the economic indicators show positive results by inertia."
The CUT note begins by
labeling the Central Bank's decision as "unbelievable" and concludes
by affirming that "it is difficult to believe that the broad public,
that is, Brazilian society, will want to continue watching reruns, because
it knows that the end isn't a happy one for anybody."
The Union Force, another
labor union, issued a note in which it expressed its perplexity over the "Copom's
lack of sensitivity when it decided to maintain the prime rate at 16.5 percent."
The labor group criticized
the monetary policy that has been "awarding the banking sector with record
profits, to the detriment of production and employment."
The decision, according
to the Force, does not contribute to the resumption of economic growth. "We
deeply regret this tragic decision, which already jeopardizes the first half
of 2004 and frustrates popular aspirations for more jobs."
The president of the Paraná
Industrial Federation (Fiep), Rocha Loures, called the decision by the Monetary
Policy Committee to keep the country's basic interest rate (Selic) unchanged
at 16.5 percent annually, "a cold water bath for the economy." Loures
added that the government was making it difficult for the economy to reach
its own level of activity. "The high interest rate policy represses development,"
Spokesmen for the Rio
de Janeiro industrial federation (Firjan) declared that there was room for
further reductions in the rate and they were disappointed. A note said there
was no danger of a generalized increase in prices and that a window of opportunity
had been closed, a window leading to the possibility of renewed growth.
The Rio commercial federation
(Fecomercio/RJ) was harsher in its criticism of the Copom decision. "This
is not welcome news for an economic segment where sales were down 3.6 percent
in 2003. We represent 318,000 firms that employ 1.8 million people. And we
can tell you that there is no inflationary pressure due to demand," declared
Orlando Diniz, president of the Fecomercio/RJ.
On the other hand, according
to the director of variable income at the Banco Santos, Eduardo Fornazier,
the Copom decision was expected. But he pointed out that the decision was
based on projected rises in the Broad Consumer Price Index (IPCA), which should
not be the case in March making it possible to reduce the Selic by 0.25 percentage
points at that time (that is, at the next Copom meeting which begins on March
Finally, economist Alberto
Furuguem, of the Economic Policy Council at Fecomercio/RJ (Conselho de Política
Econômica da Associação Comercial do Rio de Janeiro),
said the Copom decision to keep the Selic at 16.5 percent without any further
indication of whether it will rise or fall at the next meeting was not a surprise.
Furuguem said the decision
was in keeping with average market expectations. "It just shows a conservative
positioning of the Central Bank, but it does not rule out further reductions
in the future," he declared.
Furuguem pointed out there
were no threats of inflation in March or April, with the recent price spike
at an end. Therefore, he said, he believed that the Selic should continue
to drop in the next few months.
The Fecomercio/RJ economist
concluded by saying that in his opinion the great anti-inflationary anchor
this year is going to be the exchange rate. He pointed out that the dollar
closed out 2003 at less than R$3.00, compared to market estimates of up to
R$3.20. He added that the trade surplus had helped keep the dollar down and
without pressure from prices there was no reason not to expect further reductions
in the interest rate.
Alana Gandra works for Agência Brasil (AB), the official press agency
of the Brazilian government. Comments are welcome at email@example.com