The Ministry of Finance believes that the trajectory of the country’s economic scenario is compatible with lower interest rates. The ministry understands that data on economic growth and inflation, together with other data, point to a potential reduction in Selic, which currently has a base rate of 15% a year.
At a press conference this Thursday (11/13), Finance Policy Secretary Guilherme Melo presented figures showing not only average incomes, but also a slowdown in economic growth, a reduction in inflation forecasts, and a slowdown in the pace of job creation.
Understand the status of interest in Brazil
- The Selic rate is the primary instrument for controlling inflation.
- Copom members are responsible for deciding whether to reduce, maintain, or increase Selic rates. Because BC’s mission is to control price increases in domestic goods and services.
- The expected result of raising interest rates is a reduction in domestic consumption and investment.
- In this way, credit becomes more expensive and economic activity tends to slow down, causing lower prices for consumers and producers.
For Melo, these numbers, especially those that show “inflation is converging towards the target,” could feed into the Selic level, as other factors are also taken into account in determining the index.
“The outlook is that this process (lower inflation) will continue and reach 3.5% next year and 3% in 2027. This trajectory is therefore compatible with monetary policy easing, because today monetary policy is in the significantly or extremely restrictive zone,” he said.
Inflation in 2024 ended at 4.83%. The current target center for this indicator is 3%, with a margin of error of 1.5 percentage points. Therefore, if it stays between 1.5% and 4.5%, the goal is considered achieved. The goal is now continuous. That is, it does not end at the end of each year. Calculated monthly considering the past 12 months. In October, the index ended at 4.68%.
The claims he defended echo Finance Minister Fernando Addad’s speech last Monday (10/11). “All I can say is that I think there is room for interest rates to come down, but everyone knows my opinion.”
Mr Melo’s views on the reduction in Selic interest rates were announced during the presentation of the November macro-fiscal report at the ministry. This document is a bi-monthly report responsible for publishing short- and medium-term forecasts on economic activity and inflation indicators, and is used in the EU’s budgeting process.
He also noted at the press conference that there had been adjustments in monetary and fiscal policy in the first quarter of this year. This measure was taken in consideration of the expectation that rising prices would lead to inflationary pressures.
“If you look at the budget announcements and budget implementation, especially in the first half of this year, you’ll notice a more limited implementation. In other words, fiscal spending at the beginning of the year is much smaller than in previous years, combined with a more restrictive monetary policy,” he said.
Selic’s decision
Selic rates are defined by the Committee on Monetary Policy (Copom). The last university meeting was held on November 4th and 5th and it was decided to maintain the index at 15%. New deliberations will be held on December 9 and 10 this year, when the group will meet again.
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