Industry and trade unions respond to unchanged benchmark interest rate

The recent Central Bank decision not to change Brazil's benchmark interest rate (SELIC, currently at 14.25% per annum) was welcomed by the industrial sector. In a statement, the National Confederation of Industry (CNI) said the Central Bank's Monetary Policy Committee (COPOM) made a sound decision in a time of economic downturn and uncertainties in the global scenario.

According to the CNI, Brazil's monetary policy is failing to control inflation, and further interest hikes would only deepen recession in the country. “The industry regards double-digit inflation as unacceptable. Bt it should be noted that that the recent increases are a reflection of regulated price hikes, negative expectations*, and inertial inflation. Therefore, using interest rates as the only tool for controlling inflation is ineffective and deepens recession,” it said.

In their opinion, only an austerity policy that cuts spending and reforms that enhance Brazil's competitiveness will be able to bring inflation back down and revive confidence in the country. They advocate reforming the pension system, refreshing labor laws, cutting red tape, expanding infrastructure, and streamlining the tax system.

The Federation of Trade in Goods, Services and Tourism of São Paulo (FECOMÉRCIO-SP) has also welcomed the Central Bank's latest interest decision. According to them, the effect on prices of further SELIC increases would weaken over time, worsening the recession and deteriorating government finance.

“The economic scenario of stagnation with high interest rates and high inflation will not change until the fiscal issues actually begin to be solved. Without that, the forecast for the next few years will be no different,” said the federation.

Unlike them, the National Confederation of Finance Workers (CONTRAF-CUT) criticized the Central Bank's decision saying it will only worsen the crisis and push Brazil's economy further toward the cliff's edge.

“Keeping the current interest rate will only serve to continue the recession, with negative effects on job creation. It will deepen the crisis, increase public debt, and drain wealth from the society to the bankers,” said chairman Robert von der Osten. He said a high SELIC rate creates difficulties for businesses to finance their investments, and forces them to reduce their production levels and eventually close the doors, increasing unemployment and decreasing income and consumption.

The Força Sindical union also believes that the current interest rate is too high and does not help reduce inflation. “The government's economic policy is ruining the country. Millions unemployed and a majority of businesses facing 50% idle time only shows that the economic policy of President Dilma Rousseff's administration is wrecking the country,” said the union's chairman Paulo Pereira da Silva.

Translated by Mayra Borges