Brazilian Central Bank brings down the basic interest rate in the country

The Monetary Policy Committee (Copom) of Central Bank (BC) of Brazil put down on Wednesday (7) the basic interest rate (Selic) by 0.75 percentage point. With the cut, the Selic rate went from 10.5% to 9.75% per year. This reduction was slightly higher than expected by the market, awaiting the fall of 0.5%, but did not surprise the experts.

The professor of economics at the School of Advertising and Marketing (ESPM-RJ) Roberto Simonard believes that the measure had been expected. To Simonard, this is a classic measure for a more significant economic expansion, in view of the weak result of growth of Gross Domestic Product (GDP) in 2011. He also noted that the Selic rate is the rate that guides all the others, such as credit card and overdraft, and its greatest impact is to stimulate consumption.

“Brazil had a reduction (economic growth) quite impressive compared to 2010. The government wants to see if you can increase these rates, “he said Simonard. “The Selic rate is the basic of all others, credit card and check. If it falls, it is expected that other fall and stimulate consumption. ”

The economist noted that, according to the latest data from the IBGE, consumption represents 60% of Brazil’s GDP. It is therefore important to encourage it, but thinks the competition between the domestic and international markets is fierce.

“Part of the actual consumption will be lost because of the consumption will be directed to the imported product,” he said.

Downward trend

Despite the fall in the rate, the professor believes that interest in the country remain well above those charged by the world. His bet is that there is a downward trend higher over the year.

“We believe that the Selic will go down even more. I personally think it will reach 8.5% this year. Perhaps the very first semester. “I am in favor of the reduction, but compared with other countries it is very high. Therefore, it will still attract a lot of international finance capital. ”

Simonard pointed the new trend of the flood of dollars into the country, with the massive influx of capital in the domestic market. This movement generates appreciation of the Brazilian currency, reducing the price of imported products and sharpening competitiveness – often unfairly – with the domestic industry.

For the teacher, the Brazilian economy was hampered by problems of infrastructure, unskilled labor and excessive tax burden. However, as a change in the fiscal policy appears very complex, the measures focus on monetary policy. Simonard considers that the reduction will not affect the Selic rate to almost nothing the financial market and believes it is too early to talk about increasing inflationary pressures.

“The financial market in Brazil will not be much affected by the fall in the Selic rate and also do not see major changes in the dollar,” he said. “On the inflation would be premature to diagnosis. Let’s see.”

Finally, the economist analyzed as a positive measure, but if looked alone it has no power to bring more prosperity to the Brazilian economy.

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Joe Cloud
Dutch, American, Brazilian... lived there for 5 years and owns property in Brazil. Out of the country for a few years now and would like to go back, however current circumstances tell me it's not the right time.

Published by Joe Cloud

Dutch, American, Brazilian... lived there for 5 years and owns property in Brazil. Out of the country for a few years now and would like to go back, however current circumstances tell me it's not the right time.