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CNI President criticizes Central Bank decision on interest rates and warns of impact on Selic

Written by Paulo S. Nogueira
Published 31/01/2024 às 21:40
basic interest rate, rate of reduction of the basic rate
© 2023 – All rights: Industry Portal

Ricardo Alban defends tax relief and greater aggressiveness in the rate of fall in the Selic rate to reduce financial costs and inflationary pressure.

The president of the National Confederation of Industry (CNI), Ricardo Alban, reiterated the importance of a bolder stance by the Monetary Policy Committee (Cup) in relation to the reduction in the basic interest rate (Selic). According to Alban, the decision to maintain the Selic rate of reduction at just 0,50 percentage points is excessively conservative and unjustifiable, considering the current scenario economic of the country.

Furthermore, he highlighted that, keeping the inflation scenario under control, it is essential that there is an acceleration in the pace of reduction of the Selic rate at the next Copom meeting. The president of the CNI defends the need for more energetic measures to boost the economy, highlighting the importance of a decision in line with the needs of the industrial sector.

Copom's aggressiveness in relation to Selic

More aggressive action by the Copom is essential and highly desirable so that a more significant reduction in the financial cost borne by companies, which accumulates throughout the production chains and consumers, is possible. Without this urgent change of stance, we will continue to penalize not only the Brazilian economy, but especially Brazilians, with fewer jobs and income', warns Alban.

Assessment of the Broad National Consumer Price Index (IPCA) reveals a favorable behavior of inflation. The IPCA ended 2023 at 4,6%, below the upper limit of the inflation target defined by the National Monetary Council (CMN). Furthermore, it is crucial to consider the slowdown in relation to 2022, when the IPCA was 5,8% or 8,9% if tax exemptions in that year are considered. In January 2024, the inflation preview changed by 0,31%, lower than expected.

In addition to the constant slowdown in current inflation, expectations are positive. According to guidelines from the Central Bank's Focus Report, forecasts indicate inflation of 3,8% at the end of 2024. A month ago, expectations for 2024 were at 3,9%. In addition to falling, the outlook once again indicates that the target will be met, but with an even more optimistic perspective, since, in addition to respecting the ceiling, the center of the target, at 3%, must be approached.

impact of exchange in controlling inflation

The exchange rate is another element that provides support for the inflation scenario under control. In January 2023, the exchange rate exceeded R$5,40 per dollar. In recent months, however, it stabilized at around R$4,90 per dollar, relieving inflationary pressure from imported products.

With recent favorable inflation data in the United States, favoring the beginning of the cycle of cuts in the American basic interest rate in the first quarter, it is possible to reduce the Selic more quickly without, via a reduction in the interest differential in relation to the United States, pressure on the exchange rate and, consequently, on inflation in Brazil.

In addition to controlled inflation, another reason that justifies the need for a more intense cut in the Selic is the negative effects that high real interest rates are having on the Brazilian economy. Even with the four Selic reductions carried out since August 2023, the real interest rate – which disregards the effects of inflation – is still at 7,65% per year, that is, 3,15 percentage points above the neutral interest rate , one that neither encourages nor discourages economic activity.

The cost of the real interest rate is too high for the country's economic activity

The exorbitant level of the real interest rate has been very costly for the country's economic activity. O TAX ID No It has already stagnated in the third quarter of 2023 and expectations are not positive for the last quarter of the same year. A industry production transformation accumulated a drop of 0,9% between January and November 2023, compared to the same period in 2022.

Retail alternates months of decline with months of modest growth: sales fell 0,3% in October and rose just 0,1% in November 2023. The services sector, in turn, accumulated a decline of 2,2% between August and October 2023, although it increased 0,4% in November.

Source: Industry Portal

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Paulo S. Nogueira

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