Despite the first increase in the Selic rate in the current term of President Luiz Inácio Lula da Silva (PT), announced by the Central Bank (BC) this Wednesday (18), the government believes that interest rates will enter a new cycle of decline at from mid-2025.
The political wing of the government hopes that the trajectory of the Selic will be different from the path taken during the administration of former president Jair Bolsonaro (PL), when it increased following the covid-19 pandemic and reached the electoral period in 13.75 % per year.
With the increase in the Selic rate in Brazil and the drop in interest rates in the United States, the Lula government’s expectation is for the real to appreciate. The Brazilian currency has weakened in recent months and has already reached close to R$5.80.
The greater interest differential with the United States should bring more capital to Brazil, strengthening the Brazilian currency and helping to control inflation. Given this scenario, there is room for a reduction in the Selic rate, the government’s political core is betting.
The government is betting on the Selic’s downward trend so that, in 2026, when the presidential campaign begins, interest rates will be used as a campaign asset.
However, the assessment is that to reduce the interest rate, the Central Bank would need to trust that Brazil will manage to control the growth of gross debt and transform its primary deficits into surpluses.
