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Central Bank tips interest: understand how it improves your life

Reduction of Selic

For the new consecutive time, the Central Bank decided to cut the basic interest of the economy (Selic). We explain everything you've always wanted to know about the Selic

With the continued fall in inflation and the recovery of the economy, the Central Bank decided to topple the Selic rate to 7.5% a year. And it directly affects your life. The lower the rate, the better for you and the country. In practice, families will have lower interest on loans and financing; for companies, the cost of investing declines and they can generate more jobs.

The interest rate drop is a virtuous circle, but this reduction is only possible if the country has the necessary conditions for the Central Bank to reduce the rate. In recent months, the Brazilian government has created these conditions by taking important measures, such as creating the spending ceiling, putting the pension reform bill on the ballot, and other actions that have reorganized the economy.

We set up a test-case so you know everything about it. Check it.

How is the interest rate decided?

The evolution of the basic interest rate (Selic) is decided in a meeting of the Monetary Policy Committee (Copom), formed by the Central Bank's board of directors. There are eight meetings a year, one every 45 days.

The meeting takes place in two steps. In the first part, on Tuesday, a market and economic analysis is done. During the morning and afternoon, technicians of the Central Bank present analyzes of the Brazilian and international economy for the directors.

On Wednesday, the second stage of the meeting takes place. This part of the meeting, however, counts only on the presence of the directors and the president of the Central Bank.

What is the interest rate for?

Because it is used as a reference for all transactions between banks, Selic influences the entire Brazilian economy. When it rises, access to credit by the population becomes more difficult, resulting in decreased consumption. If the rate falls, the inverse process occurs.

Why is it used to control inflation?

As the Selic rate has an influence on consumption, it is the Central Bank's main tool to control prices and inflation.

What does it affect economic activity?

As the increase in the Selic rate increases the attractiveness of investments in public debt securities, the tendency is for investors to place funds in loans to the Government of Brazil, once the return becomes higher.

When the reverse occurs, investments in the productive sector become more viable, which benefits the economy during periods of weak economy.

Why is it important to control inflation?

Faced with Brazil's history of hyperinflation, respect for price controls is a commitment that the Brazilian government will act to avoid a scenario of high inflation, which erodes wages, increases inequality and affects economic stability.

In this way, by respecting the inflation target, now 4.5%, the government gives more security to families, companies and investors that it is committed to stability and the direction of the economy.

What has happened in recent months?

More optimistic about changing economic policy directions, expectations for inflation have improved and prices have been falling. Economic activity is still in the process of resumption, which contributes to the fact that the Central Bank has room to make cuts in the Selic rate.