Brazil's Central Bank recently raised its benchmark interest rate, known as the Selic, from 13.25% to 14.25%, a decision that has sparked significant backlash from various sectors, particularly those tied to industry and labor. This increase, announced on March 19, 2025, marks the fifth consecutive rise and brings the Selic to its highest level in nearly a decade, a position reminiscent of the economic turmoil experienced during Dilma Rousseff's presidency in 2015 and 2016.
The National Confederation of Industry (CNI) was quick to respond, labeling the Central Bank's decision as detrimental to the economy's recovery. According to the CNI, "The decision does not have any effects other than harming the economy." They criticized the high rate of 14.25% per year, asserting that it fails to consider other factors contributing to economic stability, including the recent declines in the dollar and oil prices. As of mid-March 2025, the dollar had dropped from R$ 6.19 at the end of 2024 to R$ 5.68, while Brent oil prices fell significantly from US$ 85 in October to approximately US$ 70.
The CNI emphasized that, despite these favorable conditions, the Central Bank's decision overlooks essential economic indicators that could help stabilize inflation further. Furthermore, the Paulista Association of Supermarkets (Apas) echoed this sentiment, calling for more prudence from the Central Bank in calibrating monetary policy so that economic growth can be sustained. They argued that Brazil already faces some of the highest real interest rates in the world, complicating efforts to increase investment in the nation.
While the CNI and Apas criticized the high interest rates, the Commercial Association of São Paulo (ACSP) presented a different perspective. The ACSP regarded the Central Bank's decision as in line with financial market expectations, highlighting that the Central Bank will likely raise interest rates further as long as government spending remains elevated. "Despite lower dollar rates, inflation continues to outpace expectations, necessitating a more restrictive monetary policy," the ACSP stated, emphasizing the challenging fiscal landscape.
Labor organizations did not hold back in their criticism, either. The Confederation of Workers in the Financial Branch of the Unified Workers' Central (Contraf-CUT) voiced strong opposition to the rate hike, decrying the burden it places on the populace. Juvandia Moreira, President of the Contraf-CUT, remarked, "For years Brazil has maintained an abusive basic interest rate, which not only inflates banking rates but benefits only a small group of rentiers." She pointed out that the last decrease in the Selic occurred in May 2024, when rates were still a staggering 10.50%.
Echoing Moreira's concerns, Miguel Torres, head of the Força Sindical, asserted that the Central Bank failed to adjust its monetary policy under the new leadership of Gabriel Galípolo, appointed by President Luiz Inácio Lula da Silva. Torres explained that raising interest rates at this juncture generates greater uncertainty and negatively impacts job creation and household income. "The current environment continues to constrict credit availability, stifling consumption and hindering economic growth opportunities," he warned.
Amid these criticisms, the Central Bank remains focused on addressing inflationary pressures, citing various ongoing factors contributing to the economic climate. In their statements, officials pointed out the strong resilience of the economic activity level, a robust labor market, elevated government spending, and international pressures having significant effects on the BRL/USD exchange rate. In the previous year, Brazil's Gross Domestic Product (GDP) grew by a respectable 3.4%, a figure that underscores the intricate balance the Central Bank is attempting to navigate.
Haddad minimization of the rate increase is noteworthy. He claimed that the current rise was anticipated as guidance had been issued earlier regarding expected monetary policy adjustments. Citing the challenging external environment influenced largely by U.S. economic policy, he insisted that the results align with previous projections made by the Central Bank.
This latest decision reflects growing global uncertainties, as the U.S. Federal Reserve recently maintained its rates between 4.25% and 4.50%. Furthermore, the Central Bank expects that inflation projections will remain elevated, with targets for 2025 and 2026 now estimated at 5.7% and 4.5%, respectively, deviating from the overarching aim of convergence.
The Copom's next meeting implies the possibility of yet another rate increase—but potentially of a smaller magnitude. Notably, this decision falls within the new leadership framework of the Central Bank, which shifted to include a majority of directors appointed under Lula’s administration.
As Brazil navigates these financial headwinds, the stakes are high amid ongoing discussions surrounding the Selic rate and its broader implications for economic stability and growth. The future of credit accessibility, consumer spending, and overall economic resilience hangs in the balance as policymakers, industry leaders, and labor representatives voice their perspectives in a bid to shape a stable economic landscape.
