By Matthew Malinowski
Central bank chiefs, led by Roberto Campos Neto, are expected to keep borrowing costs at 13.75% for the sixth consecutive meeting on Wednesday, as consumer price forecasts remain above target.
Although headline inflation has moderated in recent months, core inflation, which excludes volatile items, remains on the upside.
The monetary authority’s stance has drawn the ire of Lula and some of his closest allies, who say the policy hurts people with low incomes and investments.
In his speech, Lula promised to create jobs and assured that women and men would receive equal wages for equal work.
He said his government is studying exempting workers from paying income tax for profit sharing.
CAPITAL INCOME
Late Sunday, Lula announced an increase in the monthly minimum wage and the exclusion of more low-income workers from income tax requirements.
At the same time, the administration issued an executive order taxing capital income on financial investments obtained abroad by residents of Brazil.
As of January 1, 2024, any such income of up to R$6,000 (US$1,202) will not be subject to taxation, while amounts between R$6,000 and R$50,000 will be taxed at a rate of 15% and gains above R$50,000 at 22.5%.
Policymakers have not yet considered initiating an easing cycle after raising rates by 11.75 percentage points in a year and a half.
According to a Finance Ministry statement, the move could generate revenues of about R$3.25 billion this year, R$3.59 billion in 2024, and R$6.75 billion in 2025.
Meanwhile, changes in income tax brackets will reduce revenues by R$3.2 billion in the remainder of this year, R$5.88 billion in 2024, and R$6.27 billion in 2025.
In March, the Lula government presented a plan to strengthen Brazil’s public finances, which was greeted with caution by investors.
This week’s announcements follow positive data in Latin America’s largest economy.
A gauge of gross domestic product far exceeded expectations in February, while inflation slowed to its lowest level since 2020.
With information from Bloomberg