Brazil is champion of high interest rates after increase in the Selic rate

Brazil is the country with the highest interest rate per year, discounting the projection of inflation, according to the world ranking of real interest compiled by the portal MoneYou and the manager Infinity Asset Management. The list has 40 countries.

This mark was reached after the Central Bank’s Copom (Monetary Policy Committee) raised the basic interest rate (Selic) by 1.5 percentage points last Wednesday (2) to 10.75% per year.

To arrive at real interest rates, however, the study made an equation between the estimated nominal rates and those negotiated on the market for January 2023. In the case of Brazil, the reference for market interest is the index of DI contracts (Interbank Deposits), which was at about 11.9% a year last Wednesday.

From this calculation, the prospect of high inflation for the next 12 months is discounted — for Brazil, the projection is 5.38%, according to the Central Bank’s Focus survey. The result is a real interest rate of 6.41% per year, placing Brazil at the top of the podium of countries with the most expensive credit, ahead of Russia (4.61%) and Colombia (3.02%).

The list of nations with positive rates is small, with only ten positions, also occupied by Chile, Mexico, Indonesia, Hungary, Turkey, Malaysia and the Czech Republic. Another 30 are in the opposite situation.

Argentina at the end of the line. The neighboring country has negative interest rates of 14.5%, which reflects inflation that ended 2021 at a high of 51%.

Considering the general average of the listed countries, the world interest rate is negative at 1.27%.

In most parts of the planet, economies continue with interest rates below estimated rates of inflation. This scenario reflects the rapid and surprising rise in global prices. A situation generated by the imbalance between high demand and low supply of goods and inputs after the economic recovery generated by the advance of vaccination against Covid-19 in the main world economies.

Central banks around the world, however, have started or are discussing starting monetary tightening – raising interest rates – to combat the escalating cost of living.

Among the 40 countries in the ranking, 67.50% maintained their rates in the last round of discussions by their respective monetary authorities, while 32.50% raised rates.

Overall, which extrapolates the ranking, of the 167 countries analyzed, 78.44% maintained interest rates and 19.16% increased. Only 2.40% cut.

“Although part of the quantitative easing programs are preserved, the global movement of monetary tightening policies has gained strength, with the significant increase in the number of central banks signaling concern about inflation, especially due to recent supply shocks and the prospect of an increase in commodities”, says the Infinity Asset report on the study.

The manager also highlights the global weight of the position of the Fed (Federal Reserve, the central bank of the United States) on the next steps of the monetary policy of the main economy of the world.

The monetary authority has been saying that it will have to take its benchmark interest rates from zero starting in March, a measure considered necessary by Fed members so that the country can curb the highest inflation in four decades.

Emerging countries such as Brazil are under pressure to raise interest rates amid expectations that fixed income investments in the United States will become more attractive. If they don’t, they run the risk of facing the exit of investors, a shortage of dollars, and even more inflationary pressure due to the imbalance in the exchange rate.