Downward bias

The recent changes in the Brazilian economy were important, but not painful. They were made appropriately, with prudence, and should effectively mark a new phase in Dilma's government. If not a new phase, it is certainly part of the President's biography and points, in recent times, to an effective change for almost the entire population.

In the more than three years that I have been writing weekly opinion pieces on Economics, this was undoubtedly the most delicate decision made by the federal government, since the confiscation of savings still haunts the memory of some people, and any matter relating to changes in the rules or flexibility in the remuneration of savings was treated with apprehension by the economic team.

There were fears that the final message would not reach the general population, and that this could trigger a run on the banks and, in extreme cases, shake the national financial system.

The overall picture is that, returning to the concept of the trigger: when the SELIC rate drops to 8,5% per year, the remuneration of savings deposits made from April 4, 2012 onwards will automatically change, with the remuneration for savings accounts being 70% of the new SELIC rate, plus the TR (Reference Rate), which, at this level, will tend towards zero.

However, the decision to reduce savings account yields goes far beyond simply altering the adjustments. The path involves generating expectations of further interest rate cuts, and this is what will effectively drive the new direction of the economy.

The trigger mechanism is simple, clear, direct, and functional. It guarantees equal treatment for both small and large investors, in addition to keeping the most popular investment product exempt from Income Tax, something that was feared by many, and frankly, was one of the alternatives this author imagined would occur: taxation of investments above R$ 50.000,00 under Income Tax.

The drop in the floor for changes in the SELIC interest rate could even influence the volume of resources and dollar inflows, restricting the attractiveness of government bonds and allowing the government to lower the basic interest rates of the economy even further, in an attempt to stimulate it.

Meanwhile, the federal government, through public opinion and open demands, is pulling down the bank spread and forcing banks to reduce their cost of credit. This means that the government is pressuring banks to lower the interest rates charged to the population, thus keeping consumption active.

Banco do Brasil and Caixa Econômica Federal have implemented a new round of reductions, and, among these, what truly caught attention was the bold reduction for homeownership, or rather, housing credit.

With this reduction and the generation of expansionary expectations for the civil construction sector, the shares of construction and real estate development companies traded on the Bovespa have already changed levels and have experienced price increases of more than 5%.

Conversely, the requirements for obtaining loans are increased, since there is a loss in individual earnings from operations, which must be offset by a reduction in default rates, i.e., a customer database with higher quality and lower risk.

Regarding investments and the shift in the flow of dollars to Brazil, the option of foreign capital entering our territory to take advantage of double-digit interest coupons on public debt is outdated. I mean that, with a prudent reduction in the economy's basic interest rate, we will cease to be the sole and exclusive destination for speculative capital.

It is important to remember that, during her last visit to Germany, Dilma Rousseff heard from Angela Merkel that she, as Chancellor of Berlin, could not prevent her people and investors from seeking quick and speculative gains in Brazil, given the interest rates paid here.

Note that we still have the highest interest rates in the world; however, the expectation and the way forward is that we will reach a more rational level, closer to our economic reality. This will cause the high attractiveness of our government bonds remunerated by the SELIC rate to decrease, opening the way for capital interested in Brazil's economic strength and solidity.

I reiterate that, unlike our neighbors, we boast strong, well-defined institutions under a prominent legal framework and a free democracy. This triad guarantees that we can receive and contribute investments, even though we have disparate agents who have not yet overtaken the historical evolution of our institutions.

The expectation of continued interest rate declines demonstrates much more than just a downward trend; it can signify real economic growth, in terms of job and income creation. A downward trend in interest rates signifies a positive economic scenario.

The capital that previously only speculated will now need to produce, and our country is opening its doors to invest it and effectively build the foundations for the future. We will encounter some operational bottlenecks, it's true, but these need to be overcome so that the Brazilian engine doesn't stop due to any problem.

 

Antônio Teodoro is an economist and professor.