Haddad criticizes interest rate hike: 'too much of a remedy'
The government is concerned about the negative impact that higher interest rates could have on growth.
247 - Finance Minister Fernando Haddad warned on Wednesday (31) that the persistence of a high interest rate, such as the current Selic rate, could have a negative effect on the pace of economic growth in 2025. During an interview, Haddad highlighted that, although Selic rate hikes are necessary to contain inflation, they can, over time, stifle economic activity, creating a scenario of slowdown next year, according to a report in the newspaper Valor Econômico.
The minister referred to the impact that a restrictive monetary policy can have on consumption, investment, and the labor market. “The remedy of high interest rates, while necessary to control inflation, has a side effect. The economy in 2025 will naturally be slower if the interest rate policy remains at this high level,” he stated. According to Haddad, the government has been facing an “excess of remedies” to treat inflation, which, he believes, is an approach that could generate undesirable consequences for the country's sustainable growth.
According to Haddad, it is important that the government and the Central Bank find a balance between the need to control inflation and the urgency of stimulating the economy. The minister suggested that the government is attentive to the impacts of this policy and stressed that fiscal management must go hand in hand with a monetary policy that seeks stability without harming growth.
Maintaining a high interest rate can generate a series of additional challenges for the government's economic management. With public debt still at high levels, the cost of debt also tends to be directly impacted by the increase in the Selic rate, which generates extra pressure on public finances.
Haddad reiterated that the government is committed to fiscal responsibility, but confirmed that high interest rates pose an additional obstacle to the implementation of external public policies aimed at growth and job creation. "We are trying to implement a responsible fiscal policy, but we cannot ignore the impacts of high interest rates on the investment capacity of the state and the private sector," the minister stated.
Economic experts also point out that, although controlling inflation is a priority, the persistence of high interest rates for a prolonged period could worsen the scenario of economic stagnation. Household consumption, one of the engines of economic growth, is already showing signs of slowing down due to the increased cost of credit, which reduces the purchasing power of the middle and lower classes.
Furthermore, Brazilian industry, facing a scenario of high costs and a weaker domestic market, may have difficulty recovering.
Amid this scenario, the government, through the Ministry of Finance, is seeking alternatives to mitigate the negative effects of the Selic rate hike without abandoning its commitment to economic stability. Haddad cited tax relief initiatives and the strengthening of external credit policies for small businesses as an attempt to alleviate pressure on the most vulnerable sectors of the economy. However, he stressed that, to achieve sustained growth, it is crucial for Brazil to have a more balanced monetary policy.
The minister also highlighted that the government has no direct influence over monetary policy, which is the exclusive responsibility of the Central Bank, but expressed the expectation that, with the gradual reduction of inflation, the Central Bank could begin to ease interest rates throughout 2025. "If we manage to make progress in controlling inflation, I hope that the Central Bank can consider the possibility of an interest rate reduction cycle, which would be crucial for the resumption of growth," Haddad stated.
