The Copom, the Monetary Policy Committee of Brazil's Central Bank, just cut interests 0.5% this Wednesday, June 6. Since September 2005 when rates were reduced from 19.75% to 19.50%, the Selic has been lowered 7.75%, 1.25% of which during this year. According to Up Trend, a consulting firm, the world's real average interest rate is 2.3%.
There was no unanimity in the Copom's decision. While five members of the committee voted for a 0.5% cut, two of them wanted a more modest 0.25% reduction.
It seems that the continued decline of the dollar vis í vis the real has convinced the majority of the Copom members to accelerate the rhythm of cuts. Copom's next meeting will happen on July 17 and 18.
High interest rates are not bad for everybody. National and foreign speculators love it. Investors from all over the world are putting their money in Brazilian stocks, which are multiplying their money much faster than their countries.
According to Brazil's Central Bank, US$ 28 billion in foreign currency had already entered Brazil by the end of April, an amount not far from the US$ 37.27 billion invested in the country by foreigners the whole of 2006, which was a record.
Central Bank officials complain that all the interest rate cuts in the last two years were not enough to heat up the Brazilian economy to a level of other developing countries. Experts argue that it takes about six months before an interest reduction can be felt in the economy.
Before yesterday's Copom meeting the Iedi (Institute of Studies for Industrial Development) released a note saying that a 0.5% cut wouldn't be enough to discourage foreigners to speculate: "To have an impact on the expectations concerning the rate of exchange and in order to reduce the Central Bank's number of interventions, which are costly, we will need a larger reduction, like 0.75 %."