CNI President Bets on Bold Interest Rate Cut by Central Bank.

Written by Paulo Nogueira

Published on 30/01/2024 at 15:40

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Ricardo Alban: Brazilian Economy Slows Down, Inflation Controlled in the U.S., and GDP Grows Consistently.

The president of the National Confederation of Industry (CNI), Ricardo Alban, emphasizes the importance of lowering interest rates to boost the economy. Alban highlights that the decrease in the basic interest rate, Selic, is essential to stimulate investments and consumption, contributing to the country’s economic recovery. He believes that the Central Bank is prepared to adopt a more assertive stance regarding monetary policy, promoting more significant cuts in the interest rate.

Moreover, the CNI president stresses that lowering interest rates is a crucial measure to make credit more accessible and cheaper, stimulating the growth of the industry and the economy as a whole. He underscores the need for the Central Bank to adopt a less conservative approach and align more with global trends in order to boost the country’s economic development. Alban emphasizes the importance of closely monitoring the COPOM’s decisions and changes in the interest rate, Selic, to ensure a more favorable economic environment for business and investment.

Positive Impact of Lowering the Basic Interest Rate

The CNI president emphasizes that the inflation on a constant decline and the expectations of inflation receding are contributing to the improvement of the Brazilian economy. The IPCA closed the year 2023 at 4.6%, within the range forecasted by the inflation target policy, representing a reduction from the 5.8% recorded in 2022. Thus, reducing the interest rate more rapidly does not pose a threat to meeting the inflation targets.

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Comparison with Other Economies

Alban highlights that while in Brazil the Central Bank is promoting an exaggerated reduction in the economy, in the United States, inflation reduction has occurred in line with significant growth in Gross Domestic Product (GDP). In 2023, the price index used by the U.S. Federal Reserve (Fed), the PCE, was at 2.6%, compared to 5.4% in 2022. Additionally, GDP growth reached 2.5% in 2023, surpassing the 1.9% recorded in 2022.

In this context, even with a real interest rate of only 2.7% per year, expectations indicate that the Fed will begin lowering interest rates in the first quarter of 2024. This further reinforces the urgency for the Brazilian Central Bank to accelerate Selic cuts, according to Alban. He stresses the need for the Central Bank, independently, to join the necessary effort to achieve sustainable economic growth in Brazil.

The current level of interest rates has negatively affected economic activity. Developed countries are about to reduce their interest rates, making it even more crucial to accelerate Selic cuts, lest Brazil drift further from the interest rate levels practiced by these countries, says Ricardo Alban.

Monetary Policy Detrimental to Economic Activity

Ricardo Alban points out that Gross Domestic Product (GDP) remained stagnant in the third quarter of 2023 and is expected to have declined in the last quarter of this year, as the Central Bank’s Economic Activity Index (IBC-BR) showed a 0.2% reduction in October and remained stable in November.

In the industrial sector, the situation is critical. According to IBGE, the production of the manufacturing industry has seen a 0.9% decline from January to November 2023, compared to the same period in 2022. The sector is still operating 2.3% below the pre-pandemic production level. Furthermore, the decline in economic activity has also impacted the services and retail sectors.

Retail has been alternating between months of decline and modest growth. After a 0.3% drop in sales in October, there was an increase of only 0.1% in November. The services sector recorded a 2.2% decline over three consecutive months, from August to October, despite advancing by 0.4% in November.

Source: Industry Portal

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CNI President Bets on Bold Interest Rate Cut by Central Bank.

Ricardo Alban: Brazilian Economy Slows Down, Inflation Controlled in the U.S., and GDP Grows Consistently.

Positive Impact of Lowering the Basic Interest Rate

Comparison with Other Economies

Monetary Policy Detrimental to Economic Activity

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CNI President Bets on Bold Interest Rate Cut by Central Bank.

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