The Central Bank’s Copom (Monetary Policy Committee) raised the Brazilian basic interest rate again this Thursday (16th). With the increase of 1 percentage point, the Selic now reaches 11.75% per year, the highest level since February 2017.
Just a year ago, in March 2021, the basic interest rate was at 2%, the lowest level in its history.
Thus, with a sequence of nine consecutive highs, the Selic rose 9.75 points in 12 months, the fastest interest rate hike in the country’s recent history, in an attempt by the Central Bank to contain the strong advance of inflation.
With the new interest rate hike, Brazil only surpasses Russia — currently at war with Ukraine and the target of all kinds of economic sanctions — in real interest rates, in a ranking of 40 countries prepared by asset manager Infinity Asset.
Real interest takes into account the nominal interest rate (the one defined by Copom), minus the inflation for the period. They are considered a better measure for comparing countries, as inflation is very different between them.
Considering nominal interest rates, Brazil is also among the highest rates in the world – it ranks fourth, behind Argentina (which currently has a base rate of 42.50% per year), Russia (20%) and Turkey (14%). .
Before invading Ukraine, Russia had a benchmark interest rate of 9.5%, but the Russian Central Bank raised the rate by more than 10 points at once in an attempt to stem the ruble’s rapid devaluation after the start of the crisis. war.
In Brazil, even without war, interest rates are among the highest in the world.
Raising interest makes the cost of borrowing money more expensive. This reduces inflation, as it inhibits household consumption and business investment.
But it also harms the performance of economic activity, slowing job creation and GDP growth.
Also on Thursday, the Fed (Federal Reserve, US central bank) raised interest rates by 0.25 percentage point, in the first rate hike in the United States since 2018, also in an attempt to contain inflation.
The Fed projected that the base rate should reach a range between 1.75% and 2% by the end of the year. The measure is bad news for Brazil, as it tends to attract resources to the United States, devaluing the currency of emerging countries.
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