Copom maintains Selic at 13.75% by 7 to 0, and public debt reaches R$11 trillion

The Monetary Policy Committee (Copom) of the Central Bank interrupted the sequence of cuts and maintained the Selic at 13.75% per year, unanimously, in a decision taken on Wednesday, November 4th. The 7-0 score frustrated those who were hoping for a sixth consecutive cut.

According to Estéfano Santos, founder of X-Trader and Nasdaq Futures trader for more than 10 years, the result draws attention to one detail: the president of the Central Bank was appointed by President Lula, who has already publicly criticized high interest rates. Even so, none of the seven voted for the cut.

The weight of interest on your pocket and bills

In a video on X-Trader TV, Estéfano remembers that Brazilians feel Selic for what comes at them. The credit card's revolving rate is 451% per year (the law limits the total interest to the amount of the original debt). The country has 84 million people with late bills and 9.3 million companies in the same situation, both records, according to the numbers he cited.

In the ranking of real interest rates (the rate discounted for inflation) of the 40 largest economies, Brazil leads with 9.49%. Next come Türkiye (7.77%), Argentina (6.80%) and Russia (6.57%). The United States (0.46%) and Germany (0.31%) are well below, and Japan has a negative rate.

Estéfano states that each percentage point less in the Selic saves more than R$60 billion per year in public accounts. Public debt reached R$11 trillion, almost 83% of GDP, compared to 71.7% at the end of 2022. In interest alone in 12 months, the bill exceeds R$5,000 per Brazilian, according to him.

Why cutting hard doesn’t work

For Estéfano, Brazil itself has already tried to force low interest rates. In October 2012, Selic reached 7.25%, then the lowest in history. Inflation returned, reaching 10.67% in 2015, and the rate rose to 14.25%. He points out that public spending and the political crisis also had an impact.

The Turkish case, says Estéfano, is more extreme: the government wanted low interest rates anyway, the Central Bank cut it with inflation rising, the currency melted and official inflation reached 85.5% in October 2022. The interest rate had to rise to 50%, and Turkey today has the second highest real interest rate in the ranking. He considers that Turkish debt has much more dollars than Brazilian debt.

The wheel of fear and who receives it

In Estéfano's assessment, Brazil entered into a logic similar to that of the revolving system: it pays part of the invoice and the rest becomes debt. He cites the market reaction on October 26, the day after the second round, when the stock market fell almost 14%, the biggest drop since the pandemic, with trading interrupted, and the dollar rose 8%, to R$5.40. Analysts, according to him, pointed out fears about public accounts.

The cycle described: dollar rises, inflation follows, the Central Bank is unable to cut, interest rates are high, debt grows, fear increases and the dollar rises again.

In the federal government's internal debt, banks and financial institutions take the largest share. Investment funds receive 23%, social security 22% and foreigners almost 10%. The Treasury Direct, with almost 4 million people, accounts for 3%. For Estéfano, the same interest that crushes one side pays the other. His conclusion: swearing doesn't fall when you shout, it falls when the lender believes he will receive it.

Automatically translated from Portuguese.