Interest rate reductions are still insufficient, according to organizations.

The fourth consecutive cut in the Selic rate, defined this Wednesday (5) by the Monetary Policy Committee (Copom) of the Central Bank (BC), was well received by economic agents, but is still considered insufficient and restrictive for the expansion of the industrial sector, says a note from "Agência Brasil". In a note, the Federation of Industries of the State of Rio de Janeiro (Firjan) stressed that the continuity of the Selic reduction cycle represents a positive sign for economic activity, but that the still high level of the rate keeps credit expensive and delays investments. "The high cost of capital postpones investments, hinders productive modernization and limits the ability of Brazilian companies to gain productivity and compete in domestic and foreign markets. This situation is reflected in the performance of the manufacturing industry, which grew only 0.4% in the first half of the year, according to the Brazilian Institute of Geography and Statistics (IBGE)", said the entity. Along the same lines, the National Confederation of Industry (CNI) pointed out that interest rates have been at a restrictive level for 55 months, and that the Selic rate is 3.6 percentage points above the rate calculated based on the Taylor Rule, estimated at 10.4%. This rule allows for the calculation of an interest rate that controls inflation without discouraging economic growth. "The real interest rate, approximately 10%, comfortably exceeds the equilibrium rate estimated by the Central Bank itself, of 5%, indicating that there is room for more significant cuts in the Selic rate without harming the fight against inflation." Among workers' organizations, the Força Sindical also classified the 0.25 percentage point reduction in the Selic rate as insufficient. According to the union, high interest rates make credit more expensive, reduce investment, discourage consumption, and compromise job creation. "We missed an excellent opportunity to drastically reduce interest rates, inject some energy into the productive sector, and further boost the economy," the organization said in a statement.

Expectation

Camilo Cavalcanti, portfolio manager at Oby Capital, assessed that the Copom (Monetary Policy Committee) maintained its message that the total magnitude of the interest rate reduction cycle will still be defined in light of new data, without any pre-commitment, and reinforced the upwardly asymmetrical risk balance. "At the close of the statement, the Copom explicitly cited the unanchoring of expectations and the elevated risks surrounding the baseline scenario as justification for 'serenity and caution' in conducting monetary policy. Given this contrast between a more favorable current scenario and a still cautious forward-looking communication, we believe that the Copom still keeps open the possibility of continuing the interest rate cut cycle at the next meeting, but emphasizes the arguments for a pause," he observed.

Copom

The Monetary Policy Committee (Copom) of the Central Bank (BC) reduced the Selic Rate, the basic interest rate of the Brazilian economy, by 0.25 percentage points on Wednesday (5), from 14.25% to 14% per year. This is the fourth consecutive time that the committee has reduced interest rates. The decision was made at a meeting at the BC headquarters in Brasília. According to the institution, the new gradual adjustment of minus 0.25 points is compatible with the strategy of converging inflation to around the target in the next period. Regarding the external environment, the BC again pointed to the scenario of uncertainty regarding armed conflicts in the Middle East and uncertainty about monetary policy in some advanced economies.

This text was translated by machine from Brazilian Portuguese.