MercoPress. South Atlantic News Agency

Two weeks to Brazilian presidential election, Central Bank cuts interest rate for the fifth time running

President Lula is neck-and-neck in election polls with conservative senator Flavio Bolsonaro, son of jailed former right wing president Jair Bolsonaro

With presidential elections in two weeks’ time, Brazil’s central bank cut its benchmark interest rate for the fifth straight time. The bank lowered the so-called Selic rate from 14% to 13.75%, and is part of a cycle that began in March after almost two years of rate hikes.

 President Lula da Silva is seeking a non-consecutive fourth term in the elections starting October 4, and as his US counterpart has long advocated for lower rates to boost growth, regularly criticizing the previous head of the Central Bank, until he managed to have Roberto Campos Neto replaced by Gabriel Galipolo..

Higher interest rates make borrowing more expensive and discourage consumption but also tamp down inflation, and Brazil has an ongoing inflation threat which Campos Neto combatted relentlessly.

However the central bank under Galipolo has proceeded with caution, given the spike in oil prices caused by the US-Israel war against Iran and uncertainty over the monetary policies of other leading economies.

This did not prevent the Copom (Monetary Policy Committee) meeting warning that “higher than usual” risks to inflation remain, despite inflation falling to within the bank’s target of 3% plus or minus 1.5 points.

President Lula is neck-and-neck in election polls with conservative senator Flavio Bolsonaro, son of jailed former right wing president Jair Bolsonaro, whom Lula defeated in 2022.

Even though inflation is easing, many Brazilians say they feel life has become more expensive. The preliminary price index for May indicates that food consumed at home rose 1.73% compared to April.

The increase was driven by items such as potatoes, which rose by 26.3%. Excessive rainfall in producing regions of Minas Gerais and Paraná also contributed to the price hike. Other foods, such as onions, tomatoes, and milk, also underwent price adjustments, according to the Brazilian Institute of Geography and Statistics (IBGE).