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In The Minutes, Central Bank Cites Uncertainties In Debt And Easing Of Government Reforms As Barriers To Inflation Control, According To CNN.
The Central Bank (BC) published on Tuesday (23) the minutes of the last Copom (Monetary Policy Committee) meeting, reinforcing the decision to keep the Selic rate steady at 15% per year. As detailed in the document and reported by CNN, the monetary authority signaled that interest rates will remain at a “significantly contractionary” level for a “considerably long” period. The central justification is the difficulty in anchoring inflation expectations.
The minutes were direct in pointing out domestic reasons for the rigidity of monetary policy. The BC attributed the need for high interest rates to the “fading effort in structural reforms and fiscal discipline” on the part of the government, coupled with “uncertainties about the stabilization of public debt”. This scenario, according to the committee, increases the cost of bringing inflation back to the target of 3% by 2025.
The Rise Of The “Neutral Rate” And The Fiscal Blame
One of the most relevant technical points highlighted by the Central Bank in the minutes, according to CNN’s analysis, is the impact of the fiscal scenario on the “neutral interest rate”. The neutral rate is the level of the Selic that neither stimulates nor depresses the economy, keeping inflation stable. When this neutral level rises, the monetary authority needs to apply an even stronger dose of interest (above neutral) to manage price increases.
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The Copom document is explicit in stating that the “fading” of reforms and the lack of fiscal discipline from the government, along with the increase in directed credit, raise this neutral rate. In practice, the BC assesses that the fiscal policy (government spending) is working against monetary policy (inflation control), making the BC’s job more difficult and costly for society, requiring the Selic to remain at 15% for a longer time.
External Scenario vs. Internal Uncertainties
Although the focus of the minutes was on the domestic scenario, the Central Bank also monitors international risks. The Copom mentioned that it is following the debate about the start of the interest rate cutting cycle by the Federal Reserve (the U.S. central bank) and the growth pace of the United States. Inflation in the U.S., especially the impact of tariffs, continues to be a point of attention.
However, the minutes released, and reported by CNN, suggest that internal challenges weigh more heavily on the current decision. The Central Bank document notes that while there are “structurally challenging” issues abroad, such as the fiscal situation of developed countries, it is the short-term uncertainties of U.S. monetary policy and, mainly, the internal fiscal deterioration that dictate caution from the Copom in keeping the Selic at 15%.
Why Is The Selic At 15% For A “Prolonged” Period?
The main mission of the Central Bank is to ensure that inflation converges to the target set at 3% for 2025, with a tolerance ceiling of 4.5%. With the inflation expectations “de-anchored” (meaning the market does not believe the target will be met), the Copom understands that it needs to be tough. Keeping the Selic at 15% is the tool used to cool the economy and force prices to yield.
By using the terms “significantly contractionary” and “considerably long”, the BC sends a clear message to the market and the government itself. The committee, according to the minutes obtained by CNN, indicates that there will be no interest rate cuts (which would relieve the economy and public accounts) until there is a noticeable improvement in the fiscal scenario. The Central Bank also advocated for a “counter-cyclical fiscal policy” (spending restraint), which would help reduce future interest rates (risk premium).
The Central Bank‘s decision to keep interest rates at 15% directly impacts credit, investment, and your pocket. But is the blame truly on the “fiscal fade” of the government, as the minutes suggest? Or is the BC being too strict?
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