Brazil Central Bank’s Monetary Policy Committee (Copom) surprised the market at the end of its most recent regularly scheduled meeting this week and reduced the country’s basic interest rate, the Selic, from 12.50% to 12%.
It was the sixth Copom meeting of the year (they take place every 45 days) and the first Selic reduction since the beginning of 2010. The Selic began to decline in January 2009, going from 13.75%, to reach a historic low in July 2009, when it was one digit, less than 9% (8.75%), for the very first time; but then, in April 2010, a series of increases began that only came to an end yesterday.
The Copom vote was 5 to 2 for the reduction and in a note the committee said it saw signs of reduced economic activity “generalized and of great magnitude” in the world’s principal economic blocks.
The note added that this year the Selic had risen from 10.75% (since January) due to strong domestic economic activity and inflationary pressures.
São Paulo Industrial Federation’s (Fiesp), acting president João Guilherme Ometto, praised the decision by Copom to reduce the Selic from 12.5% to 12%, but called it insufficient.
Ometto said the Copom may have committed a “grave error” by acting so conservatively and not reducing the Selic even more against a background of “an economic slowdown both domestically and abroad.”
“In order for the country to maintain a strong rhythm of growth, what is needed is a strong reduction of interest rates, while maintaining prices under control,” declared Ometto.
“Keeping interest rates high is just repressing consumption and subjecting Brazil to the effects of the international crisis.”
The president of the labor union Força Sindical, Paulo Pereira da Silva, called the Copom decision to reduce the country’s basic interest rate “correct, but the wrong dose.”
According to da Silva, “The Copom move was timid and insufficient. The right medicine, but not the right dose. With this measure, the government is counteracting economic growth.”
In a note, the leader of the Força Sindical went on to say that there was room for a bigger reduction, especially in light of recent announcements by the government of fiscal adjustments (that is, reductions in spending).
The Força Sindical, according to Paulo, intends to hold public protests in favor of lower interest rates.