Brazil's Economy Minister stated that the Selic rate should be reduced, but in a "sustainable" manner

Brazil's Economy Minister, Dario Durigan, stated this Thursday that the current level of interest rates is harmful to the Brazilian economy, and that the government must adopt the necessary measures to create conditions that allow financing costs to decrease in a "sustainable and structural" manner.

"Interest rates are very high and very harmful to the economy and all sectors," the official stated. These remarks came alongside the Central Bank of Brazil (BCB) decision to halt its rate-cutting cycle on Wednesday, keeping the Selic reference rate unchanged at 13.75%, one of the highest interest rates among major emerging economies.

This decision by Gabriel Galípolo ended a streak of five consecutive cuts after the surprising re-election of President Luiz Inácio Lula da Silva shook financial markets and worsened inflation outlooks for the South American giant.

In a statement accompanying the decision, BCB members noted that they are facing a "complex scenario for monetary policy" due to a significant increase in uncertainty surrounding their baseline scenario, higher inflation expectations, and a "more pronounced slowdown" in economic activity.

Questions about Lula's next steps

Durigan's statements came just a day after clarifying that Lula da Silva is not considering the proposal from economist and banker Andre Lara Resende, architect of the Real Plan, to cut the reference interest rates as a way to reduce Brazil's government debt, one of the main concerns for investors.

"There is nothing of that on the table, and it is important to make that clear," emphasized the minister, adding that there was no meeting scheduled between economist Andre Lara Resende and Lula, as highlighted by Reuters.

Durigan mentioned this Thursday that he would participate in a meeting called by Lula this morning to discuss the economic agenda and present to the president "scenarios and proposals." Nevertheless, he expects Lula to make a decision on possible fiscal measures after returning at the end of this month from a trip abroad.

"We will continue debating and presenting proposals, but when the president returns from his trip, we should have more information," he explained, referring to Lula's visits to Turkey and the Philippines, where he is expected to stay until November 15.

How Brazil's rate affects Argentina

Movements in the Selic rate are not only important for Brazil's monetary policy but can also impact Argentina, as the neighboring country is the main trading partner of Javier Milei's government, as well as one of the preferred tourist destinations for Argentinians.

For example, a decrease in the Selic rate can weaken the Brazilian real, stimulating economic activity and generating greater demand for Argentine products, as well as a stronger Argentine peso in comparative terms to the currency of the neighboring country, which makes it cheaper for Argentinians to vacation in Brazil.

However, that same phenomenon can make Brazilian exports more competitive in the international market compared to Argentine ones. As a consequence, it also makes imports from the neighboring country cheaper in relation to local products.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.