Brazilian Central Bank maintains Selic at 13.75% for 6th straight meeting

The Copom (Monetary Policy Committee) announced the maintenance of the basic interest rate, the Selic, at 13.75% per year for the 6th consecutive meeting.

The financial market expected the decision, despite the displeasure of President Luiz Inácio Lula da Silva (PT, progressive-globalist) and his allies.

The Central Bank (BC) published the statement on Wednesday (3).

The base interest rate has been at this level since September 2022 and above 2 digits since February 2022, i.e., for 15 months.

According to the Central Bank, the decision to maintain the Selic at 13.75% per year was unanimous.

The monetary authority was the target of criticism from Lula, government allies, and economic team members in 2023.

They complained, at least 30 times, about the high level of the Selic.

The May meeting was the third in Lula’s administration. Copom opted to maintain the Selic at 13.75% per year in all sessions.

The president of the Central Bank, Roberto Campos Neto, defends that it is still necessary to maintain this level to control inflation in the country, which is at 4.65% in the 12-month accumulated until March.

The inflation target is 3.25% in 2023 and 3% in 2024. Both inflation targets have a tolerance interval of 1.5 percentage points up and down (from 1.75% to 4.75% in 2023 and from 1.5% to 4.5% in 2024).

Brazil’s inflation has been above targets for the last 2 years.

Campos Neto went to the Senate twice last week to explain the high level of interest rates.

The Central Bank was one of the first monetary authorities in the world to get ahead of the disinflation effort.

It increased the Selic rate in March 2021 and carried out the largest Brazilian hike cycle in the 21st century.

Copom increased interest rates by 11.75 percentage points during 12 consecutive meetings from March 2021 to September 2022.

The Federal Reserve raised interest rates by 0.25 percentage points on Wednesday (3). This was the 10th readjustment in a row. The range increased from 4.75% to 5% to 5% to 5.25% per year.

INFLATION

Despite the cycle of high Selic in Brazil, the country failed to meet its inflation targets in 2021 and 2022.

In January, the monetary authority had to release a public letter explaining. Take a look at the inflation trajectory over the last two years:

• 2021 – the target was 3.75% (with a tolerance interval of 2.25% to 5.25%), but the rate was 10.06%;
• 2022 – the target was 3.75% (with a tolerance interval of 2% to 5%), but the rate was 5.79%.

The most recent estimates, released on Tuesday (May 2, 2023), show that the IPCA (National Wide Consumer Price Index) will rise by 6.05% in 2023.

This level is above the target of 3.25%. The projections are from the Focus Bulletin of the Central Bank.

Analysts also estimate the Selic at 12.50% per year at the end of 2023.

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