Brazil’s Central Bank Cuts Selic Rate by 0.25% to 10.5%, Sparking Political Backlash

The Central Bank of Brazil cut the Selic rate to 10.5% on May 8, 2024, down 0.25 points from 10.75%.

This smaller reduction marked a slowdown from the 0.5 percentage point cuts implemented in the prior six meetings.

Five Copom members backed the smaller cut, four supported the previous pace, leaving Campos Neto to cast the deciding vote.

Gleisi Hoffmann, President of Lula’s Workers’ Party (PT), criticized the move, calling it a “crime against the country.”

She argued that the Central Bank’s autonomy enabled “Bolsonarist” leaders to oppose the current administration.

Federal representative Lindbergh Farias echoed Hoffmann, labeling Campos Neto a “sabotager” who deliberately hindered economic progress.

Both emphasized that reducing the Selic rate by 0.25% will stall Brazil’s development.

The Central Bank’s decision stemmed from two key factors:

1. Fiscal Policy Changes: The government revised its fiscal targets, shifting from a primary surplus of 0.5% of GDP in 2025 to a zero deficit in line with the 2024 goal.
2. Federal Reserve Stability: The U.S. Federal Reserve maintained interest rates at 5.25% to 5.5% for the sixth consecutive session, signaling a cautious stance.

Brazil’s Central Bank Cuts Selic Rate by 0.25% to 10.5%, Sparking Political Backlash

Campos Neto stressed that monetary measures must align with fiscal policy.

He warned that losing fiscal discipline complicates monetary policy and increases inflationary pressures.

Inflation, measured by the IPCA, was 3.93% over 12 months, a drop from 4.5% in the previous period.

With a 3% inflation target and a 1.5% to 4.5% tolerance range, the Selic reduction seeks to maintain economic growth amidst global uncertainty.

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