Panel SA: Future interest rates rise with Lula’s social policy

The government hasn’t even started, but investors who operate with bonds linked to the Selic, the economy’s basic interest rate, are trying to make money from Lula’s social policy.

With the Transition PEC, which provides for more public expenditure to finance welfare policies, the market began to negotiate fixed income papers with higher interest rates.

The assessment of this group is that the expansion of spending on relief measures to the most needy will lead to more consumption – which will put pressure on inflation, leading the Central Bank to raise the Selic to contain this advance.

The analysis of the capital market, however, differs from the BC forecast, which is based on interviews with bankers, who aim to offer credit to the population and companies.

Today, the Selic is at 13.75% per year. The BC’s most recent projection is 8% for 2025. Market-traded securities maturing this year are currently being traded at 11.8% interest — a difference of 3.8 percentage points upwards.

This mismatch of expectations was not so accentuated during the presidential elections, when the market believed there was an accommodation with the elected government, given the budgetary difficulties for policies considered expansionist (more expenses).

For analysts of this behavior at brokerages that trade the papers, one of the main triggers of this detachment was the promise that the elected president, Luiz Inácio Lula das Silva, will correct the minimum wage above the level of inflation in 2023.

The new salary floor could reach BRL 1,319 – BRL 17 above what is defined in the Budget sent to Congress by Jair Bolsonaro and whose proposal can still be reviewed. This difference alone would cost BRL 6.4 billion — an amount that must be included in the Transition PEC, a license to spend above the ceiling to be granted by Congress.

Julio Wiziack (interim) with Paulo Ricardo Martins and Diego Felix