Last week, the Brazilian Central Bank’s Copom (Monetary Policy Committee) cut the Brazil’s benchmark interest rate, the Selic, by 0.75 percentage points for the second consecutive time, lowering it to 9% per year. The decision was unanimous.
Copom has now reduced the Selic six consecutive times since last August when it was 12.50%.
Market surveys have found that most financial analysts see the Selic at 9% at the end of the year. Wednesday’s decision will give Copom plenty of time to see if they can keep the interest rate stable for the rest of the year while dealing with domestic inflationary pressure and threats from the international economic situation.
The labor union, Força Sindical, called the Copom’s decision “timid.”
“As we see it, this lowering the interest rate by eye-dropper means a lost opportunity for the Central Bank to make a drastic reduction that would create jobs and increase production,” said a note signed by the Força Sindical president, Paulo Pereira da Silva.
According to the note, interest at 9% continues to hinders economic expansion. “Fewer jobs are being created and industrial production has worsened over the last few months,” concluded the note.
The National Industrial Confederation (CNI) released a note saying that the decision was correct.
According to CNI, persistently falling inflation and stagnation in the industrial sector leave room for more active monetary policy
Copom has been almost aggressive, reducing the Selic from 10.50% in the last 90 days; that is, by 0.75 percentage points in its last two consecutive meetings.
The CNI says that, in its opinion, inflation this year should come in near the government’s target of 4.5%, plus or minus two percentage points and that means there is room for an attack on bank spreads.
Lower spreads, declared the CNI, will enable “…the cost of capital to be less punishing to the productive chain.”
The Industrial Federation of the state of Rio de Janeiro (Firjan) said the decision by Copom to reduce the Selic by 0.75 percentage points was “not a surprise,” with economic activity sluggish and inflation under control.
The environment is ripe for a reduction of interest rates, said the organization in a note.
But Firjan went on to say that the Selic reduction should be accompanied by institutional reforms that permit a lasting reduction of production costs and increased productivity.
Firjan pointed out that it supports bills in Congress to eliminate fines on employers who fire workers and end cascading taxation on the supply chain, specifically industrialized goods.
Following the announcement of the Copom’s decision the São Paulo Industrial Federation (Fiesp) said the measure should include a reduction in the cost of bank loans.
“The Central Bank has been reducing interest rates for six months. It is time for banks to lower interest rates on loans to individuals and corporations. There must be a credit stimulus in order to sustain economic growth and the creation of jobs in Brazil,” declared Paulo Skaf, the Fiesp president in a note.