Brazil reinforces the highest real interest rate in the world with a rise in the Selic rate

The hike in the basic interest rate this Wednesday (3) reinforced Brazil’s position as leader in the world ranking of real interest rates, a position it has held since the May meeting of the Central Bank’s monetary committee, according to a survey by the MoneYou portal and the Infinity Asset Management.

To arrive at the real interest rate —nominal rate discounted for inflation—, the study considered a projection of high consumer prices for the next 12 months, as well as the rates negotiated in the interest market with maturity in 12 months.

This calculation showed that Brazilian effective interest is at 8.52%, more than double that of the second place, Mexico, whose rate is 4.2%.

Reference for the yield of fixed income bonds, the United States appears in the 25th position with a negative return of 3.25% per year. The ranking has 40 countries.

Argentina is 11th on the list, with an effective rate of 0.57%, although it boasts nominal interest rates of 60% per year, the highest on the planet.

Considering nominal rates, Brazil has the third highest rate, at 13.75% per year, behind Turkey (14%) and Argentina.

The report also highlights the worldwide trend of rising interest rates, a necessity noted by many central banks in the face of soaring global inflation this year.

Among the 40 countries that make up the ranking, 33 of them (82.5%) raised their rates and only 1 (2.5%) cut it. Six (15%) made no changes.

High interest rates make access to credit difficult, inhibiting consumption and putting a brake on economic activity in general.

But the relationship between a significantly high rate to be maintained in the coming months and the expectation of a slowdown in inflation positions Brazil as a promising destination for foreign investment, according to Jason Vieira, chief economist at Infinity Asset.

This is what in market jargon is often called an interest rate differential.

In addition to the return on inflation, investors also assess factors such as institutional stability and default risks for the country and its companies.

“This is an important point for Brazil’s interest rate differential, as it is one of the safest countries, in terms of emerging markets, to apply at this time because it is a safe place, institutionally speaking”, comments Vieira.

“There is also the advantage of Brazil, in this context of income, obviously, with the best real rate in the world”, he says.

By raising the Selic by 0.50 percentage point this Wednesday (3), to 13.75% per year, the Copom (Central Bank’s Monetary Policy Committee) indicated that it will slow down the tightening of credit, evaluating an adjustment of 0, 25 point in September.

Part of the market considered that the current rate will be, at least, stable until the first quarter of next year. As there is a prospect of a deceleration of inflation, the reading that is made is of an even greater interest differential in the coming months.

The most important point to consider for this drop in inflation is the deceleration of the US economy, whose second quarterly drop in GDP (Gross Domestic Product) sparked the alert for the risk of recession.

With the world’s largest economy moving a little slower, the Fed (Federal Reserve, the US central bank) is also expected to slow its interest rate hike. This will be the cue for investors to withdraw dollars from the US Treasury and seek more profitable options in emerging countries.

Vieira emphasizes that internal and external risks can, of course, jeopardize this favorable context for Brazil.

The lack of control of Brazilian government spending during the election period and international issues, such as the Ukrainian War, are still on the market’s radar.

“The impression is that, adjusting to this short-term scenario and to geopolitical issues, Brazil can become a recipient of international investments, which can help with exchange rates and inflation, which is already declining”, concludes Vieira.