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Thursday, September 28, 2023

Interest rate in Brazil: Copom will define Selic index

The Monetary Policy Committee (Copom) meets this week to define the new basic interest rate, Selic. The announcement will be made by the Central Bank (BC) next Wednesday (20). Market economists project a drop of 0.5 percentage points, reducing the index to 12.75%.

With the last half-point reduction announced on August 2, Selic fell from 13.75% to 13.25% per year. Even with the cut, the basic interest rate of the Brazilian economy remains the highest in the world, in real terms (interest minus inflation), according to the Ministry of Finance.

The minutes of the meeting that defined the August reduction signaled that new cuts are planned in the coming months.

In the minutes, the Copom informs that, “with regard to the next steps, members unanimously agreed with the expectation of cuts of 0.50 percentage points in the next meetings and assessed that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process”.

With the reduction in Selic, government spending on interest decreases. Interest rates on financing and loans also tend to fall, stimulating consumption and investments.

:: Understand the dispute between Lula and the Central Bank ::

Impact of Selic on the economy

In July, the BC released its most current report on the fiscal situation of the Brazilian public sector.

The document points out that the public sector – federal, regional and state governments – spent R$40.7 billion in June alone to pay interest on the public debt.

In the 12 months ended in June, there were R$638.1 billion – 8.4% more than the R$588.6 spent in the previous 12 months.

::Government celebrates Selic cut; economists call for further reductions ::

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Editing: Vivian Virissimo

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