Cut of 0.25 percentage points in Selic is considered insufficient by industry and workers

The 0.25% percentage point reduction in the economy's basic interest rate, the Selic, was considered insufficient by industry and worker representatives, who consider the decision to be “timid” and that “does not alleviate the financial situation of companies and families”.

The decision was announced this Wednesday (16) by the Monetary Policy Committee (Copom) of the Central Bank (BC), which reduced the Selic rate from 14% to 13.75% per year.

After the cut was announced, the National Confederation of Industry (CNI) said, in a statement, that the Copom was excessively cautious in view of the downward trend in current inflation in recent months.

“There is a consistent trajectory of deceleration, reaching 4.22% in the 12 months up to August, and an improvement in market expectations, indicating gradual convergence towards the target of 3% per year in the relevant horizon for monetary policy”, says the CNI in a note.

The president of the confederation, Ricardo Alban, considers it important for the BC to maintain the downward trend in interest rates. With today's decision, this is the fifth consecutive reduction in the Selic.

"It is essential that the Central Bank continues the Selic reduction cycle. Maintaining the basic rate at such a restrictive level for a prolonged period means imposing a greater cost on the economy than is necessary to ensure price stability. There is room to advance in the cycle of cuts without compromising the convergence of inflation to the target", he stated.

Still according to the CNI, even after the cut, monetary policy remains austere. With Selic at 13.75% per year, real interest is around 9%, around four percentage points above the neutral real rate estimated by the Central Bank, of 5% per year. .

The Central Única dos Trabalhadores (CUT) said that the drop is an important step, but insufficient given the very high level of interest rates in the country.

“Selic directly influences the cost of loans and financing and, even when the reduction reaches the consumer with a delay, it opens up space for a cheaper credit trajectory”, highlights Neiva Ribeiro, president of the São Paulo Bank Workers Union and executive director of CUT.

For Neiva Ribeiro, the slowdown in prices and the economy creates conditions for the Central Bank to move forward in cutting interest rates.

"The debate needs to go beyond financial market indicators. Lower interest rates mean more favorable conditions for credit, investments, job creation and a reduction in the financial cost that weighs on families, companies and the public budget", he stated.

A similar assessment is made by the workers' center Força Sindical, which considers the 0.25 percentage point cut to be very timid and a real “bucket of cold water” for the economy in the fourth quarter (October, November and December).

“We missed an excellent opportunity to promote a drastic reduction in the interest rate, give a shot in the arm to the productive sector and further leverage the economy,” said the center.

For Força Sindical, the Central Bank has practiced a policy that concentrates income in the hands of bankers and speculators, “maintaining the interest rate at prohibitive levels for the productive sector and the creation of jobs.”

“This high interest rate policy also reduces families’ consumption capacity, weakens business confidence and discourages investments, compromising economic growth and income distribution”, concludes Força.

Construction Industry

The Brazilian Chamber of the Construction Industry (CBIC) considered the reduction in the Selic rate positive, but highlighted that it is necessary for the movement to continue. The entity warns, however, that Selic remains at a high level, imposing challenges on the productive sector and limiting a more consistent recovery of credit and investments.

For the president of CBIC, Eduardo Almeida, the current Selic level, one of the highest in the world, highlights the size of the challenge faced by Brazilian businesspeople, especially the construction sector that depends on credit and has a long production cycle.

"We have been experiencing double-digit interest rates since the beginning of 2022, which represents a great challenge for businesspeople, especially in a sector like construction, which works with long-term projects and depends on credit and predictability. We need to move forward in building a stable macroeconomic environment, which allows the continuation of this movement of reducing interest rates in a sustainable way and encourages new investments", stated Almeida.