Breaking the taboo of high interest rates.

This month, the Dilma government took a bold and courageous step to begin reducing consumer interest rates in the country. Following instructions from the president, Banco do Brasil and Caixa Econômica Federal drastically reduced the interest rates they charge their clients on a series of consumer credit operations. This is a move similar to that taken at the beginning of the 2008 crisis, when these same banks were the first to reduce lending restrictions adopted by the entire banking system, still under the effect of panic generated by the international crisis. At the time, the government was accused of "political use" of public banks and of adopting "irresponsible" measures that could "cause harm" to Banco do Brasil and Caixa Econômica Federal. The balance sheets of these banks in the following year and the performance of our economy showed the doomsayers how wrong they were.

The measures adopted aimed to combat one of the most serious problems that can affect the proper functioning of any market, regardless of the product: the lack of competition. With the end of inflation, the Brazilian banking system saw a drastic reduction in the number of banks in operation, either due to the bankruptcy of several banks or the merger of some of them. As a result, there was a great concentration of market power in the hands of a few banks. To give an idea, in credit and leasing operations, the 5 largest Brazilian banks dominate about 80% of the market. With so few competitors, a veritable club was formed in this market, allowing its members to charge whatever prices they wanted for the resources they lent.

The result of the measures was excellent, as the huge influx of customers seeking to transfer their accounts to Caixa Econômica Federal and Banco do Brasil forced private banks to lower their interest rates as well. After many years of struggle, the government finally achieved substantial progress in ending what seemed to be a taboo in the Brazilian financial system: the extremely high bank spread, which is the difference between what banks pay in interest to customers with financial investments and what these same banks charge customers who borrow money, in operations such as financing vehicles, furniture, appliances, or in Direct Consumer Credit (CDC).

Now, to continue lowering consumer interest rates (which are still high compared to other countries), the challenge is different; it means addressing another taboo: the rules of savings accounts. Few understand the relationship between the Selic rate and savings accounts, but the mechanism is relatively simple. By law, savings accounts pay interest of just over 6% per year, plus the variation of the TR (Reference Rate). Investments in CDBs (Certificates of Deposit), CDIs (Interbank Deposit Certificates), and other financial applications are based on the Selic rate, which was reduced to 9% at the last meeting of the Central Bank directors. If this institution makes further, desirable cuts to the rate, this would make financial investments less advantageous than savings accounts, fostering a migration of financial investments to savings accounts. But what is the problem then?

For the consumer, this migration wouldn't represent major problems, but for the government it would. To remunerate CDB and CDI investments, banks buy government bonds. These bonds are the method used by the government to manage public debt. A massive migration to savings accounts would represent losses in the effectiveness of this instrument, fundamental to public accounting in any country in the world. Therefore, the government will need, in a short period of time, to change the way the most popular financial investment in the country is remunerated. This is a necessity, based on an essentially technical issue. But unfortunately, some of my colleagues in Congress are trying to make political use of this situation.

The government has been trying to discuss the changes, which depend on legislative amendments, for several months now. But whenever this issue resurfaces, opposition parliamentarians immediately emerge vociferously against any alteration. They say the government wants to "confiscate" savings, that it's "a government coup against the population," and things of that nature. My appeal is that we have a mature and sincere discussion about this matter. Those who try to take political advantage of this situation are, in fact, exploiting the lack of information among a large part of the population on the subject, and end up harming the country by acting in this way. The antidote to this is to bring information to those who lack it and bring as many people as possible into the debate. And may lower interest rates come.

Humberto Costa is a senator for the PT-PE (Workers' Party of Pernambuco).