Brazil’s Interest Rate Hike Pleases No One

Brazil’s  Monetary Policy Committee (Copom) has announced late yesterday another increase in the Brazilian interest rate (Selic) from 18.25% to 18.75%. This is the sixth consecutive increase since September 2004.

The decision was taken unanimously by the committee,  “giving continuity to the process of adjustment of the basic interest rate begun in the September 2004 meeting,” according to the note issued by Copom. Since September, the Selic rate has accumulated an increase of 2.75 points. 
 
Rio de Janeiro’s Industries Federation (Firjan) criticized the measure and said that Brazil should expect a reduction in the rhythm of growth of the economy due to the increase.  
 
For Firjan, this new boost in interest rates is ill advised in a moment in which there is more credit available and longer term financing can be more easily obtained.


Firjan believes that the Copom should have waited to see how previous increases adopted by the Committee would affect inflation.


The president of the Trade Federation of the State of Rio de Janeiro (Fecomércio/RJ), Orlando Diniz, also condemned the monetary authorities’ action.  


Diniz commented that there is no truth to the allegations that there is a threat of pressure brought in by demand. According to him what happened to the Brazilian economy in 2004 was merely a catching up after losses from the past.


The President of Fecomércio/RJ believes that the recovery process of some economy sectors, in particular the non-durable goods sector, “might suffer heavily due to the new interest rates increase. According to him, micro and small businesses will suffer the most.


The Center of Industries of the State of São Paulo (Ciesp), considered the Copom decision a “continuity of an austerity policy, that dampens productive investment and job creation.”


In  a note issued to the press, the director of Ciesp’s Economy Department, Boris Tabacof, said that economic indexes point to a deceleration of business activity and stressed that “the same policy that punishes the industry is ineffective for the control of monitored prices, which answer for 30% of the inflation.” 
 
ABr

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