Since August last year, the average market interest rates for mortgages have been around 7.7%, close to historical lows. The most recent information on this statistic compiled by the Central Bank is from April. Will the cost of money to buy a house stay in this peace? Hmm. The cost of financing a car has already started to rise, on average.
The BC has been raising its basic interest rate (Selic) in an accelerated way and the carriage ride can be even faster. In March, the Selic was 2% per year. Last week it was 4.25%. The expectation was that it would reach 6.5% at the end of 2021. In the explanatory memorandum for the Selic hike last week (“Ata do Copom”), published this Tuesday (6), there are signs that it goes beyond , maybe 7%, if inflation and upside risks are not mitigated.
A 5 percentage point rise in the Selic in 10 months should contaminate mortgage rates. There will be some transfer. Although the competition of banks for clients in this sector has increased, the cost of the banking “raw material”, the “cost of raising” money, will have taken a considerable leap. But the issue here is not a futurology about the real estate market, but a less abstract example that the monetary tightening of the Central Bank should reach the credit retail and, therefore, should shake growth prospects in 2022, everything else being constant.
The working capital of the small business will be, in addition to being salty, sour. Already expensive due to queues, high costs and production restrictions, the car will become even more expensive due to financing. Etc.
Considering the history of interest rates in Brazil, it is very unlikely that this campaign of Selic hikes will even come close to the level where this rate was in November 2016 (14% per year). But the rise will weigh on next year, in an economy that will barely recover from the losses of 2020, which has not yet recovered from the losses of 2015-2016, which is deteriorating at a very uneven pace and creating even more inequality.
The “Ata do Copom” emphasized that the BC intends to bring inflation to the target of 3.25% in 2022 (this year’s will be exceeded beyond the ceiling). In addition, he explained that the board is discussing increasing the pace of Selic hikes, from the already fast 0.75 percentage point per meeting to (according to speculation of more lively people in the square) 1 point already in August.
The fact that the public debt is rising less (thanks mainly to inflation) and the dollar is now hovering around R$5 does not refresh the inflation scenario, still pressured by rising electricity, high industrial costs (even due to lack of inputs) and, of course, because the economy is recovering faster than expected from the hole it fell into in 2020.
To be clear, the prospect of interest rates cutting part of the growth is for next year, although here and there in 2021 the direct effect of the monetary tightening will be felt.
In the “balance of risks” of Jair Bolsonaro’s electoral perspectives, therefore, new elements weigh. On the one hand, the rapid decline in GDP forecast for 2021 will bring great relief to a large part of the population. On the other hand, food inflation will have a lasting effect on the income of the poorest, the energy bill will weigh more (apart from the tension of the talk about rationing risk) and, definitely, the increase in wholesale interest will show up in the financing of the retail. It’s more incentive for Bolsonaro to rush his “social packages”.
LINK PRESENT: Did you like this column? Subscriber can release five free hits of any link per day. Just click on the blue F below.