Analysis: Brazil should prepare to live with higher interest rates
After the statements from the president of the Central Bank (BC), Gabriel Galípolo, regarding interest rates, on this Monday (19), the question that remains is when the cycle of rising Selic rates will end. "With expectations unanchored and with the scenario we have been witnessing, even with the more recent history, it makes sense to keep these interest rates at a restrictive level for a longer time than is usually practiced," Galípolo stated.
In an analysis for CNN Money, Thais Herédia pointed out that Brazil should prepare to live with higher interest rates. Herédia emphasized that the times when interest rates remained at a high level for a longer period include the final period of Alexandre Tombini's presidency (2011 to 2016) and Ilan Goldfajn's term (2016 to February 2019).
"The interest rate rose, for example, to 14.25% in July 2015 and stayed there until October 2016. It remained unchanged for more than a year. And where were the inflation expectations during that period? They were high," the analyst stated, emphasizing that currently we are not in the same situation, as Galípolo seemed to suggest. "We are not in that situation.
The expectations were indeed unanchored, but we are still not in that situation. Do we need to look back at that period, when the expectations were unanchored, and see if a year was practiced with the same rate?" Herédia questioned.
Today, the basic interest rate is at 14.75% after another increase in the last meeting in May of the Monetary Policy Committee (Copom). This is the highest level of the basic interest rate for the Brazilian economy in almost 20 years. The last time the Selic was at this level was in July 2006.
Source: CNN Brazil