Waiting on a decision on interest rates as Copom begins meeting

The Central Bank’s Monetary Policy Committee (“Copom”), which sets the country’s basic interest rate (“Selic”), begins its fifth meeting of 2011 today. At the moment, Brazil’s Selic is 12.25% per year. And the majority of market analysts are betting on another increase of 0.25 percentage points to 12.50% (at the same time that the business communities and labor unions clamor for a lower interest rate). An official announcement will be made only Wednesday evening.

A number of economists have pointed out that Copom preemptive attacks on inflationary pressure by consistently raising the Selic has technically not been efficient and that higher interest rates have stymied corporate investment and dampened hiring. Antoninho Marmo Trevisan, a member of the president’s Council on Economic and Social Development (“CDES”), as well as the NGO, Competitive Brazil Movement (“MBC”), adds that a higher Selic makes consumer credit more expensive and worsens the public debt profile. Trevisan says another indirect consequence is the valuation of the real against the dollar, which makes government interest payments more expensive. For example, says Trevisan, in 2010, the government paid R$195 billion in interest, and this year will pay over R$210 billion.