The highest interest rates on the planet are hindering Brazil's development.

The Monetary Policy Committee (Copom) of the Central Bank of Brazil will meet on March 18 and 19, 2025, to, among other topics, define the basic interest rate, the Selic, in the coming months. The financial market expects that the meeting will define a 1 percentage point increase in the Selic rate, raising it to 14,25%, supposedly aimed at combating inflation.

Recent news regarding price increases supports those who advocate raising interest rates as practically the only measure to contain price increases. Data on the National Consumer Price Index (IPCA-IBGE) for February shows that the index rose by 1,31%. This was the largest increase in the IPCA for the month of February in 22 years, since 2003, when the variation was 1,57%. A key detail is that this acceleration of inflation was mainly due to a 16,8% increase in residential electricity tariffs, which had a 0,56 percentage point impact on the overall index. But this is just one detail, which should not interfere with the decision of the nine members of the Copom (Monetary Policy Committee).

As is well known, the main pretext for the practice of the highest interest rates on the planet is inflation, which is supposedly caused by "excess demand." Brazil ended 2024 with an inflation rate of 4,83%, driven by "Food and Beverages," which had the greatest impact on the annual index with a 7,69% increase, and gasoline, which had the greatest individual impact on the year's inflation with a 9,71% increase. The increase in gasoline alone contributed 0,48 percentage points to the total IPCA (Brazilian Consumer Price Index) for 2024. One must ask: what influence could the interest rate have on the behavior of these prices? Who will eat fewer tomatoes or oranges, or drink less coffee, because the Selic rate in Brazil is the highest interest rate in the world?

Brazil already has, before the Copom meeting next Wednesday, the highest interest rate on the planet, at 8,16% annually (real interest, that is, after discounting inflation for the period). While there is no consensus regarding the effects of the Selic rate increase on the inflationary problem, it is clear that it plays a decisive role in enriching the creditors of the public debt. The federal government's interest expenses last year were R$ 950,4 billion, the highest value in the historical series, which began in 2002. These expenses represent 8,72% of Brazil's GDP in 2024 (R$ 11,7 trillion).

For comparison, last year the Brazilian federal government's spending on Social Security totaled approximately R$ 938,5 billion, an amount representing about 8,61% of GDP. The difference is that social security is fundamental for 77 million Brazilians, including retirees, pensioners, and dependents. This number represents 38% of the Brazilian population. Meanwhile, spending on public debt, which exceeds spending on social security, serves exclusively to worsen the living conditions of the population and hinder national development. While the country squanders R$ 950 billion on bankers, the federal government's spending on health last year reached R$ 215,9 billion, and spending on education totaled R$ 110,9 billion. These investments in education and health, combined, represented 34,4% of debt interest expenses.

In terms of magnitude relative to GDP, Brazil's debt (less than 80% of GDP) is only the eighth largest. Ahead of Brazil are countries such as Japan (252,36%); Argentina (154,54%); Italy (137,28%); the United States (122,15%); France (110,64%); Belgium (103%) and Egypt (90,4%). However, Brazil is the country that pays the most interest in the world in relation to GDP, according to a report by the FSB (Financial Stability Board). Argentina, governed by the craziest "chainsaw" on the planet, despite having a debt of 154% of GDP, paid less than 2% in interest in 2024 (in 2023 it allocated only 2,4% of GDP for this purpose). Among the imperialist countries, Japan has the highest public debt relative to GDP, at 252,3%, yet it spent only 0,12% of its product on interest.

The indication is that the Copom (Monetary Policy Committee) will raise the Selic rate by 1 percentage point at its next meeting. With the higher-than-expected increase in the IPCA (Consumer Price Index) in February, the stage is set for an interest rate hike. The forecast is that the Selic rate could reach 15,25% per year in the third quarter of the year. Copom members argue that the measure is necessary because the international scenario, with regard to inflation, has deteriorated, with more factors that could cause price increases. Basically, the argument is that increased demand exceeding supply capacity, that is, an imbalance between supply and demand, causes price increases, which can contaminate other sectors, leading to higher inflation.

Initially, we would have to discuss whether the thesis is correct, that is, whether inflation in Brazil essentially stems from an excess of demand for goods and services. The generalized increase in prices (also known as inflation) is a multi-causal phenomenon, meaning it has numerous causes that vary according to the space and time in which the phenomenon manifests itself. I will not repeat the elements I have already presented in other articles, but it is completely unrealistic to imagine that in an economy like Brazil's – dominated by large economic groups, a good portion of them foreign – the relationship between prices and interest rates is a direct one.

For example, the degree of idle capacity in the economy, that is, the potential productive capacity that is not being used, is an important factor in price formation, and therefore in defining the inflationary level. In February 2025, the Industrial Capacity Utilization Level (NUCI) was at 80,9%, the same percentage observed in the same month of the previous year. This means that Brazil operates with almost 20% idle capacity in its industry. In a situation of demand pressure, caused, for example, by a significant wage increase, this idle part of the industry could be immediately mobilized to increase the supply of goods. There is also the issue of the oligopolization of the economy, that is, the concentration of the economy in a small number of companies that operate in cartel regimes, that is, they make a more or less disguised combination of prices.

This is a reality of the global economy, with few exceptions. China, with its very strong state, is possibly one of those few exceptions. In that country, the main benchmark interest rate is the Loan Prime Rate (LPR), used as the basis for most bank loans. The 1-year LPR is at 3,10% and the 5-year LPR is at 3,60%. The country combines various mechanisms to control prices, from direct interventions to regulatory policies. For example, the Chinese government has recently strengthened controls on the prices of essential commodities such as iron ore, copper, and corn, seeking to stabilize raw material costs and mitigate the volatility of global markets. The government has also taken price control measures in the real estate sector, aiming to prevent speculative bubbles that could contaminate the entire economy. The Chinese government does not wait for interest rates to bring down the economy and thus cause prices to fall.

Despite this reality, all the debate about interest rates and inflation seen in the Brazilian economic press is based on the absolute myth that price variations are defined by supply and demand, functioning as they did in 19th-century capitalism. As is widely known, for about 150 years, so-called commodities, essential to the world economy (energy, minerals, food), have been dominated by large oligopolies, or monopolies, that set prices through speculative and political mechanisms. The power of these immense transnational corporations, which obtain profits exceeding the wealth production of most economies in the world, is something that countries cannot confront individually.

Inflation in the country is much more driven by costs than by demand. As noted, the acceleration of inflation is mainly due to the 16,8% increase in residential electricity tariffs, which had a 0,56 percentage point impact on the overall index. Brazil, as we have seen, has food inflation, which has accumulated a 7,63% increase, the highest increase in the price index. Certainly, food inflation in Brazil does not stem from excess demand, since Brazil is among the three largest food producers in the world, alongside China and the USA. In this context, currency devaluation, for example, tends to have a much greater impact on inflation than a supposed excess of demand relative to supply.

The Brazilian Real was one of the currencies that depreciated the most in the world in 2024, falling 21,82% against the dollar, the largest devaluation among the 20 most traded currencies globally. For comparison, the Ruble, the currency of a country suffering the largest economic boycott in history and facing a war against the North Atlantic Treaty Organization (NATO), registered a devaluation of 15% last year. Among the G20 countries, the Real was the currency that depreciated the most and the 6th that lost the most value among 118 world currencies, having been worse only than the currencies of South Sudan (-72,0%), Ethiopia (-56,5%), Nigeria (-41,7%), Egypt (-39,2%) and Venezuela (-30,8%).

It is well known that, despite the Central Bank having mechanisms to control speculation with the dollar, as the situation worsened, especially from November onwards, the bank's policy was one of inaction, until the last days of 2025. The highest interest rates on the planet do not solve even a single comma of the inflationary problem, or the public deficit in Brazil. On the contrary, they aggravate all macroeconomic problems and hinder the country's development. However, despite appearances, this is not the function of interest rates. In reality, they are a precious source of enrichment for bankers and thousands of speculators, who take the lion's share of the interest on public debt.