Background
Brazil’s President Luiz Inácio Lula da Silva has voiced his criticism of the country’s central bank, despite expectations of an upcoming rate cut. The benchmark Selic rate has remained at 13.75% since August 2022, but it is widely anticipated that a quarter-percentage point reduction will be implemented.
Inflation Concerns
Da Silva has expressed discontent with the central bank’s decision to maintain high rates amidst decreasing inflation. During a press conference with foreign journalists at the presidential palace in Brasilia, da Silva implied that the bank’s President Roberto Campos Neto lacks knowledge about Brazil and its people.
Banking Policy Defense
Campos Neto has defended the bank’s stance, attributing the magnified interest rates to the country’s elevated debt levels.
Presidential Election
Da Silva, 77, secured his third term in the 2022 election, vowing to foster economic inclusion and growth. His victory saw him triumph over incumbent Jair Bolsonaro, a right-wing figure who openly aligned himself with former US President Donald Trump.
Brazil’s Economy Shows Promising Signs
Brazil’s economy is demonstrating signs of improvement, prompting rating agency Fitch Ratings to raise the country’s rating from BB- to BB, with a stable outlook. This upgrade is a result of Brazil’s better than expected macroeconomic and fiscal performance.
In recent months, Brazil has experienced a positive shift after a prolonged period of monetary tightening that began in March 2021. During this time, inflation has been decreasing and is now approaching the central bank’s target of 3%. The 12-month consumer price index dropped from a nearly 19-year high of 12.13% in April 2022 to 3.16% in June.
However, economists anticipate a potential rebound in inflation over the next few months, with expectations for it to end the year closer to 5%. This projected increase may lead the central bank to avoid reducing interest rates too quickly. Nevertheless, inflation is predicted to continue declining further into 2024.
Despite these considerations, Da Silva, an economist, noted that Brazil currently maintains the world’s highest real interest rate without a clear justification. He believes that although the current level of inflation is manageable for Brazil, interest rates could have been set lower. Nonetheless, he remains optimistic about Brazil’s continued economic growth.