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Interest Rates — What the Central Bank and the Government Don’t Want You to Know

How insisting on high interest rates sacrifices the population and hinders development while a reduction to 5% could transform the Brazilian economy.

The proposal to reduce the Selic rate to 5% comes at a critical time for the Brazilian economy. With high interest rates, the cost of public debt becomes a monumental burden on the government’s shoulders, draining resources that could be invested in essential areas. Today, a significant portion of the public budget goes to paying interest, which limits the state’s ability to invest in strategic sectors. Reducing the rate to 5% would not only be a monetary policy measure, but a move toward fairer, growth-oriented financial management.

By reducing the interest rate, the government would achieve an estimated savings of R$250 billion, an amount that could be reallocated to social assistance, education, and infrastructure programs. This amount, which is currently earmarked for banks and large investors, could have a real and immediate impact on the lives of Brazilians. With more resources for these areas, the government would be able to offer better services, reduce inequalities, and promote human and social development, objectives that should ultimately be a priority in any nation.

High interest rates have a cascading effect on the economy. With the Selic rate high, the cost of credit becomes prohibitive for small and medium-sized companies, which are largely responsible for job creation in the country. If interest rates were reduced to 5%, access to credit would become more viable for these businesses, stimulating innovation, investment and the creation of new jobs. Instead of stifling the productive sector, Brazil would have the chance to revitalize the real economy, generating a more solid basis for sustainable growth.

In addition to stimulating the private sector, the reduction in interest rates would directly benefit Brazilian families, who face high costs in obtaining credit. With the Selic rate at 5%, loans and financing for the acquisition of assets such as real estate and automobiles would have much more affordable rates, allowing more people to make these investments. The impact on the economy would be immediate: with the increased demand for durable consumer goods, sectors such as real estate and automobiles would experience significant growth, generating employment and income.

However, a major obstacle to implementing this reduction is the resistance of the Central Bank, which has historically adopted a conservative stance, prioritizing inflation control over any other economic goal. In a scenario where inflation is within controlled levels, this rigid approach ends up being harmful, as it ignores the need to boost economic growth. The Central Bank needs to abandon this stance and start considering the benefits of a lower Selic rate for the country’s development.

The high interest rate policy, although defended under the argument of “protection against inflation,” in fact benefits a very specific group: large investors and financial sectors, which profit from the high remuneration of public bonds. This creates a situation in which the government finds itself hostage to a system that prioritizes returns for financial capitalists, to the detriment of the real economy and the population’s quality of life. Reducing the Selic rate to 5% would break this cycle of privilege, redistributing resources to sectors that really need investment.

With lower interest rates, the government would have greater freedom to implement expansionary fiscal and monetary policies designed to foster growth and the well-being of the population. Today, any attempt to increase social spending is questioned on the grounds that the State already has a high public debt. However, a significant part of this debt accumulates precisely because of high interest rates. By reducing the Selic rate, Brazil would have more fiscal space, allowing it to more effectively direct its resources towards investments that promote growth and inclusion.

Criticism of the high interest rate policy also has a profound social dimension. While a portion of the population struggles to survive in a scenario of inaccessible credit and insufficient public services, the government allocates billions to paying interest to large investors. This model exacerbates social inequality and causes the country’s economic policy to favor a wealthy minority. With a Selic rate at 5%, resources could be redistributed, allowing the State to better meet the needs of its most vulnerable population.

Lower interest rates would also create a more stable and predictable economic environment, encouraging new long-term investments. In a country where interest rates are historically high, investors are hesitant to allocate resources to long-term projects, as the cost of financing is uncertain and expensive. With a Selic rate at 5%, Brazil would signal a commitment to sustainable growth, attracting capital to strategic sectors such as technology, infrastructure and renewable energy, and driving a virtuous cycle of economic development.

Who Really Benefits?

Maintaining a high Selic rate, above 13% per year, raises questions about who really benefits from this scenario. The Central Bank, under the pretext of containing inflation, has imposed a financial burden on the entire economy, mainly benefiting large investors and the financial system, which profit from high interest rates. Meanwhile, the productive sector, small and medium-sized companies, and the population in general pay the price of this conservative and often unnecessary policy. The high interest rate policy has been, to a large extent, a tool that serves the interests of a financial elite to the detriment of economic growth and social well-being.

The impact of high interest rates is particularly visible in the public bond market. With the Selic rate high, the yields on bonds offered by the National Treasury increase, attracting large investors seeking safe and high returns. These investors, mostly banks, investment funds, and large corporations, profit significantly from these high interest rates. Meanwhile, the cost of maintaining public debt is becoming an increasingly difficult burden to bear, forcing the government to allocate billions of its budget to paying interest. In 2023, Brazil spent more than R$600 billion on interest on public debt alone, an amount that could be used for crucial sectors of the economy.

The Central Bank’s justification for keeping the Selic rate high is the alleged need to combat inflation. However, this logic is flawed in a context where inflation has been driven largely by external factors, such as the price of oil and climate crises that affect agricultural production. The high interest rate, then, becomes an ineffective response to inflation with structural causes, but the Central Bank persists in this policy, which demonstrates a lack of commitment to adjusting the strategy according to the country’s economic reality. In developed countries, central banks adjust rates with greater flexibility; in Brazil, the Central Bank’s rigid stance creates an environment of stagnation.

In terms of social impact, high interest rates worsen inequality. Instead of using public resources to invest in programs to combat poverty, education or health, the Brazilian government is forced to prioritize paying interest to creditors. This scenario means that the country, which is already one of the most unequal in the world, continues to allocate a significant portion of its resources to the richest. Meanwhile, the most vulnerable population faces difficulties in accessing credit and faces increasingly precarious public services. The high interest rate policy thus reinforces a system that perpetuates inequality and limits social mobility.

Another negative consequence of this policy is the reduction in the competitiveness of Brazilian companies. The cost of capital becomes extremely high in an environment of high interest rates, discouraging productive investment and making business operations more expensive. Small and medium-sized companies, which have less access to cheap financing, suffer even more. In Brazil, smaller companies represent about 99% of businesses and employ 55% of the workforce. When the Central Bank maintains high interest rates, it prevents these companies from having access to affordable credit, limiting their ability to grow and create jobs.

In contrast, other countries have adopted lower interest rate policies to stimulate growth. In the European Union, for example, the European Central Bank maintained negative interest rates for years after the 2008 crisis, precisely to boost credit and the economy. The United States also maintained a low interest rate policy for years to sustain economic growth. In Brazil, however, the Central Bank persists in a high interest rate policy even when inflation is within the target. This conservative stance puts the country at a disadvantage on the global stage, hindering growth and development.

The lack of transparency and accountability at the Central Bank is also a serious problem. Monetary policy decisions are made independently and often go against the needs of the population. The president of the Central Bank, Roberto Campos Neto, is not required to answer directly to the federal government or Congress, which creates a situation where a financial authority can impose measures that are harmful to the economy without being held accountable. In a democratic country, it is essential that the Central Bank be more transparent and that its actions are aligned with the objectives of economic and social development.

Keeping the Selic rate high also puts pressure on the public debt. Since the government needs to offer high returns to investors, Brazil’s public debt is growing rapidly. According to the National Treasury, the country’s gross debt already exceeds R$7 trillion, and a large part of this amount is fueled by the high interest paid to investors. This dependence on government bonds as a way to attract capital becomes a vicious cycle, where the government needs to increase interest rates to guarantee the sale of bonds and then needs more resources to honor the interest paid. The solution of reducing the Selic rate, therefore, could help stabilize public debt and free up resources for more productive investments.

The high interest rate policy also prevents Brazil from achieving long-term economic stability. With a high Selic rate, foreign investors see the country as a place for quick, short-term gains, rather than as a long-term investment market. This type of capital is highly volatile and can leave the country quickly in the event of global crises, generating exchange rate instability and directly affecting the economy. By reducing the Selic rate and encouraging long-term investments, Brazil could create a more stable and predictable economic environment, attracting investors seeking to contribute to the development of strategic sectors.

Government Inertia and the Lack of Assertive Dialogue with the Central Bank

The federal government’s stance regarding the monetary policy adopted by the Central Bank has been marked by a lack of assertiveness and consistent dialogue. Despite publicly expressing the desire for a lower Selic rate, the administration has failed to establish an effective communication channel to pressure the agency to rethink its conservative stance. This lack of firmness results in a situation in which the Central Bank makes decisions that are disconnected from the country’s real economic and social needs. The government could adopt a more proactive stance and align its economic objectives, creating a frequent and constructive dialogue involving the Ministry of Finance, Congress and the Central Bank to determine goals that serve the real economy.

Instead of being content with public requests for interest rate reductions, the government should exert more incisive influence over the Central Bank. Although the institution is independent, this does not mean that its decisions should be immune to debate or critical analysis by elected bodies. In other nations, such as the United States, the government establishes periodic conversations with the central bank to align economic policies. In Brazil, however, the lack of a robust negotiation strategy with the Central Bank demonstrates the inefficiency of institutional communication. This distancing only contributes to a still high Selic rate and an economy that remains hostage to a rigid monetary policy.

In addition, the government could mobilize public opinion and engage civil society to demand a change in interest rate policy. In a context in which the high Selic rate especially penalizes the most vulnerable segments of the population, the government has the responsibility to act as a mediator to push for a more inclusive monetary policy. With greater dialogue and public pressure, it would be possible to show the Central Bank that the current interest rate represents an obstacle to economic and social development. Brazilian society, which faces difficulties in accessing credit and basic services, needs a government that acts firmly in defense of its interests.

The federal government’s failure to create a space for regular dialogue with the Central Bank also prevents more creative solutions from being explored. There are alternatives to contain inflation without relying exclusively on a high Selic rate, such as policies to encourage sustainable consumption, support the development of strategic sectors and, above all, strengthening the domestic market. However, the lack of inter-institutional dialogue leaves these options aside, while the country remains stuck in a logic of high interest rates that no longer corresponds to economic reality and social demands.

This distance between the government and the Central Bank makes Brazil vulnerable to economic crises and creates an excessive dependence on ineffective monetary policies. The lack of clear direction and joint economic planning allows the Central Bank to make decisions with little consideration for the impact that these measures will have on the lives of Brazilians. The lack of assertive dialogue is a serious failure, since the federal government has the responsibility to ensure that the policies adopted by the Central Bank are aligned with the goals of economic growth and reduction of inequalities. Instead, the relationship between the two institutions seems to be marked by complacency and a lack of coordination.

The Central Bank’s influence over the economy is immense, and this lack of alignment with the government prevents a cohesive economic policy from being implemented. A Selic rate reduced to 5% does not depend solely on isolated decisions; it requires a long-term vision that integrates fiscal and monetary policies. The government could establish joint targets for growth and social investments, demonstrating to the Central Bank that there is a mutual commitment to boosting the economy without compromising stability. Without this coordination, the country’s monetary policy becomes fragmented and ineffective, limiting the possibilities for development.

Another important aspect that the federal government fails to address is transparency in the Central Bank’s decisions. With a high Selic rate, the impact on public debt and social investments is profound, but the Central Bank does not adequately account to the population about its justifications for maintaining this policy. A more active stance on the part of the government could open space for a public discussion on the subject, in which the Central Bank’s arguments would be confronted with independent analyses and questions from civil society. This type of debate would help break with the paradigm of high Selic and offer the population a clearer understanding of the economic choices made in their name.

The lack of effective communication is also reflected in the absence of a long-term monetary policy strategy. The Central Bank’s reliance on keeping the Selic rate high is a short-sighted strategy that ignores the possibility of viable and more effective alternatives for sustainable growth. The federal government should lead a discussion that explores new paths for the Brazilian economy, showing the Central Bank that it is possible to adopt a lower interest rate policy without losing control of inflation. Instead, the country remains in a vicious cycle of high interest rates, growing debts and limited investments, harming both the productive sector and social programs.

Another point neglected by the government is the creation of social and economic development indicators that complement the Central Bank’s goal of controlling inflation. Instead of simply pushing for a reduction in the Selic rate, the government could establish metrics that guide the Central Bank towards a broader policy that is integrated with the well-being of the population. With specific targets for areas such as employment, income and infrastructure investments, the Central Bank would be forced to balance its decisions with the interests of society. The creation of socioeconomic indicators linked to monetary policy would bring more balance and sensitivity to the interest rate setting process.

The Central Bank’s insistence on keeping the Selic rate high also highlights the government’s inertia in seeking structural alternatives for the economy. Lowering interest rates can be a transformative factor, but without a comprehensive plan that includes economic reforms and incentives for the domestic market, monetary policy alone will be insufficient to solve Brazil’s economic challenges. The lack of assertive dialogue between the government and the Central Bank contributes to an environment of stagnation and limits the possibilities for growth. The country needs an integrated action plan that involves the government, the Central Bank and other economic actors, committed to building a strong and inclusive economy.

Criticism of the government intensifies when we analyze the lack of economic expertise in key leadership positions and the choice of ministers who often do not have the appropriate training or experience for the position. Placing a lawyer in charge of the economy is a reflection of an approach that prioritizes political alignments over technical qualifications. In a country with a complex economy that is slowly recovering, it is essential that the Ministry of Finance be led by someone with in-depth knowledge of economics and finance. However, the current government has chosen figures whose track records do not demonstrate a proven ability to lead effective economic policies, resulting in poorly formulated strategies and a lack of coordination with the Central Bank.

This choice is even more problematic when we consider that economic policy decisions directly impact the lives of the population. The Minister of Economy has the power to influence everything from job creation to access to credit, but his lack of expertise and long-term vision limits the effectiveness of the actions taken. Brazil needs an economic leader who understands the dynamics of the global market and the particularities of the national economy, but the government seems more interested in maintaining political alliances than in ensuring a prosperous economic future. The appointment of frustrated military personnel and former ministers to strategic positions further aggravates the situation, as they bring a conservative vision that is often poorly aligned with the modern demands of the economy.

Furthermore, the practice of prioritizing diplomas from educational institutions of little relevance casts doubt on the technical quality of economic teams. The financial market and the production sector are complex and require specialized knowledge, but government positions are often filled with professionals without the robust training needed to face these challenges. This choice devalues ​​the importance of a solid economic education and a strategic vision, compromising the government’s ability to make informed and efficient decisions. Instead of seeking professionals with proven experience and excellent training, the government relies on figures who do not inspire confidence or demonstrate competence to deal with the country’s economic reality.

The lack of specialization is reflected in the government’s relationship with the Central Bank, which should be one of cooperation and strategy, but is limited to a public clash without concrete proposals. If there were a qualified economic team and technical leadership in the Ministry of Finance, perhaps the government would be able to establish an assertive dialogue with the Central Bank, proposing alternative measures and collaborating towards a sustainable reduction in the Selic rate. However, with the lack of technical expertise, the government is hostage to empty rhetoric, which criticizes without offering viable solutions. This type of stance only strengthens the power of the Central Bank, which continues its high interest agenda without effective interference.

This scenario highlights the negative impact of inadequate appointments and the lack of a qualified human resources policy in the government. The Brazilian economy needs prepared leaders, with a vision of development and the capacity for inter-institutional dialogue, but the government seems to disregard these qualities. Without a competent technical team, economic management is compromised, and the country continues to deal with poorly planned policies and negative impacts on the lives of the population. A nation’s economy cannot be treated as a political bargaining chip, and choosing unsuitable professionals for strategic positions only perpetuates the cycle of stagnation and economic difficulties that Brazil faces.