The rate Selic increased: what does this mean?

Every 45 days, economic news is bombarded with information about the Selic rate. This is important information that directly affects your finances.

Currently, due to rising inflation, the Central Bank has made another adjustment to try to curb rising prices. In its latest decision, in December 2021, the rate was set at 9.25% per year. This was the seventh consecutive adjustment. 

But why?

What rate is that?

Selic is the basic interest rate of the Brazilian economy.

This means that it is the institution that sets the parameters for all other interest rates in Brazil, including those charged on loans and financing and investment returns. 

The term Selic is the acronym for Special Settlement and Custody System, a virtual program in which financial institutions buy and sell National Treasury bonds on a daily basis.

The Selic rate, therefore, is related to the interest on these public bonds that the government offers in this system. 

Who decides the fee amount?

 The body responsible for setting the Selic rate is the Central Bank's Monetary Policy Council (Copom). The councilors meet every 45 days to decide whether to increase, decrease, or keep the Selic rate stable. 

To arrive at the defined index, Copom relies on several financial indicators in Brazil, considering that any change in the rate directly affects the country's economy. 

Why is Selic important?

The Selic rate regulates many aspects of the Brazilian economy. It was created in 1979, a period when our country's economy was facing hyperinflation. It's safe to assume, then, that its primary purpose is to control inflation. 

It works like this:

• When the Selic rate increases, one of the consequences is to slow down the economy, preventing inflation from becoming too high;
• On the other hand, when the Selic rate drops, the result is a stimulus to consumption and a boost to the economy, increasing inflation when it is below the target. 

Furthermore, changes in the Selic rate directly affect the profitability of various investments, including savings accounts, Treasury Direct, and fixed income.