The national economy has terms and mechanisms that may go unnoticed by the majority of the population. However, they exert great influence over various financial decisions and economic situations that involve Brazilians, in the most diverse sectors.
This is the case of the Selic rate. It is involved, for example, with savings accounts, interest paid on bank loans and financing, various investments in the financial market and also with the price of real estate.
Without a doubt, getting to know her is very important, right? Therefore, we have prepared special content on the subject so that you can better assess its impact on your daily life!
What is the Selic rate?
In a simple way, we can say that the Selic rate is considered the basic interest rate of the national economy. In Brazil, there is a whole system to support the economy with fundamental bodies, such as the Central Bank of Brazil (BACEN) and its Monetary Policy Committee (COPOM).
One of the objectives of the system is to organize economic measures and help with the stability and financial growth of the country. The Selic rate is one of the tools used, as it determines a standard interest rate that influences all sectors of the country.
This does not mean that banks, for example, will apply interest exactly the same as the Selic rate on their loans and financing for customers, such as real estate financing. However, there is a tendency for rates to increase or decrease according to COPOM decisions.
Thus, it is expected that in a scenario of high Selic, other economic indices will also increase, including the value of interest charged by banks. In the opposite context, the Selic decreases and also influences other market rates.
How does it work?
Selic is an abbreviation of the term Special System for Settlement and Custody. This is a system used by BACEN to record all trades that take place through National Treasury bonds.
Interbank operations have a lot of participation in it because, in Brazil, there is a rule that banks must close their cash on a daily basis with a positive minimum value. The measure aims to control the money in circulation and avoid rising inflation, as well as guaranteeing the security of the financial system.
When a bank does not have the internal conditions to close the daily cash register according to the rules, it can apply for one-day loans from other banking institutions. The guarantee used in the operations is government bonds.
Then, the movements are registered in the Selic system, so that the Federal Government can control the issuance, purchase and sale of the bonds. Hence the Selic rate, which reflects the operations.
It is important to differentiate two related concepts: the Selic Over rate and the Selic Meta rate. The first refers to the real market rate, calculated based on the weighted average of transactions that take place with government bonds. It is set daily according to calculations.
The Selic Meta rate, as the name indicates, refers to a target established by the national monetary policy. It is determined according to several elements (such as inflation, exchange rate, economic expectations) and reflects the direction the Federal Government wants to give to the economy.
Who sets the Selic rate?
Now you know what the Selic system is, got to know details of the Selic rate and saw that there are two types of it. In general, when talking about the subject, normally the reference is the Meta rate, which represents the one that will be sought by the Government.
The Selic Meta rate is defined by COPOM in meetings that take place every 45 days. The Over rate can be slightly above or below it each day, as it fluctuates according to the operations carried out in the market.
However, the objective is always that the rate approaches the target established by the Central Bank. For this, it can act in the purchase and sale of government bonds in order to interfere in the market and get closer to the new desired rate.
COPOM meets eight times each year to set the Selic rate. Depending on the analyzes carried out and the objectives for national monetary policy, the rate remains the same as in the last meeting, it is cut or increased.
How much is the Selic rate today?
Recently, COPOM decided to raise the Selic Rate for the first time in six years, to 2.75%.
As it can change every 45 days, it is important that those interested in analyzing the Selic follow the COPOM decisions in order to know the value defined for each period. Thus, it is possible to keep up to date, especially if you intend to carry out an operation directly related to the rate, such as a mortgage.
See below the Selic rate values in 2021:
In recent years, the Selic rate has been gradually cut by COPOM and, in 2020, it is at its historic low. So that you can see the movements, check the table below that shows the monthly fee values from 2013 to 2020.
Check the Selic rate history in the table below.
As you can see from the numbers, we had a high period between 2015 and 2017. Since then, the index has been falling. The table, as well as more information on the subject, can be accessed on the IRS website.
What is the Selic rate for?
The real usefulness of the Selic rate is a very common question for those beginning to understand more about the subject. As we said, it plays a central role in the Brazilian government’s economic policy, having become, for example, the main tool for controlling inflation.
Below, see in detail some of the major functions of the Selic rate in Brazil:
When there is a problem of high inflation in the country, it is common for there to be an increase in the Selic rate by COPOM. The decision is due to the fact that the increase in interest rates reduces consumption and makes more people choose to leave their invested reserves.
With the slowdown in demand in commerce and industry, prices are expected to decrease, which causes inflation to be reduced. In times of controlled inflation, the Selic can be reduced without causing major impacts on prices.
Economic stability management
As a central institution and responsible for collecting and administering taxes paid by the entire population — in addition to regulating the banking system — the Federal Government has a very important role in the country’s economic stability.
To contribute to this, it has a series of measures and resources that accompany market movements and react to them, influencing their continuity. The definition of the Selic rate is one of them, as it has an impact on banks and, consequently, on society as a whole.
Stimulus to the economy
One of the ways to contribute to economic stability is to stimulate the national economy. But how to do this based on the Selic rate? The logic is as follows: lower interest rates allow easier access to credit.
Thus, more people start to consume, to invest in the economy – buying real estate, for example – and also to undertake. The economy heats up, and the country can get more growth. Therefore, in appropriate scenarios (with controlled inflation, for example), the Selic reduction works as an economic stimulus.
As a result of what we mentioned about the heating of the economy, it is possible to see that the handling of the Selic rate by the Central Bank can act in the creation of jobs in Brazil. With the reduction of the rate and the consequent increase in consumption, companies develop.
Let’s think of the real estate market as an example. If interest rates are lower, construction companies get cheaper credit to expand their business, coupled with the fact that consumers also pay less on their loans.
So, it is expected that the real estate market will heat up, that there will be a greater number of works and, of course, job creation in the construction area. Something similar happens in other economic sectors, such as industries of different types.
How does Selic impact investments?
We just talked about the relationship between the Selic rate and the economy in general. We also know that it has a direct influence on investments, whether in the financial market or in entrepreneurship.
In the financial market, the immediate impact will undoubtedly be on government bonds that have the Selic as the basic rate. Their income directly reflects the rate defined by COPOM. Therefore, the interest received varies according to the increase or decrease of the index.
The other fixed income investments are also influenced by the Selic, as they usually yield according to indices that have some relationship with it, such as the Interbank Deposit Certificate (CDI) and the IPCA (inflation index).
Savings is another one that has a direct influence from the Selic, as its form of profitability depends on the rate. If the Selic is higher than 8.5% per year, the passbook yields 0.5% per month + Referential Rate.
In Selic scenarios lower than 8.5%, the savings yield is 70% of the Selic + Referential Rate. In addition to what we have mentioned so far, pre-fixed bonds will also have their rates offered based on the increase or decrease of the Selic, in order to follow the characteristics of the market.
As you can see, fixed income assets have a direct relationship with Selic. In variable income, however, the reaction is generally the opposite: a low Selic usually makes the stock market more advantageous because of the heating up of the economy.
What is her role in real estate?
The Selic rate also has a relevant impact on the real estate market, both in the investment area and in the purchase of the real estate. So, whoever wants to acquire a residence or invest in the sector should be aware.
See more details about the relationship between Selic and the real estate market:
The interest rate on financing
One of the most perceived impacts when talking about the subject is, of course, the interest rate practiced in real estate financing. As we have shown, the interest charged by banks is usually higher when the Selic rate is high and lower when it is low.
Thus, in scenarios where the interest rate increases, it is more difficult to acquire real estate, as the final amount of the loan becomes more expensive. On the other hand, when the interest rate decreases, more people are able to apply for credit from banks to buy houses and apartments.
Final price of properties
It is not just the amount paid in interest to banks that varies according to the Selic rate. The price of properties can also be different depending on the rate defined by COPOM. That’s right. You can find more expensive or cheaper properties according to the Selic rate.
The explanation starts, once again, from the idea of supply and demand, related to the heating of the economy. Generally, when interest rates are high, there is not as much demand for real estate, so there is also less supply.
With the economy heated, the movement is usually the opposite. More builders delivering projects and more people getting credit and buying real estate. So, the relationship between supply and demand in both scenarios can explain the increase and decrease in prices.
The Selic rate is especially important for those who want to invest in real estate. Be aware that the heating economy in real estate is all about the gains you can make when investing.
If credit is tight and fewer people are buying or renting, it may be harder to maintain your profits as search slows and vacancy risks increasing. On the other hand, the growing economy generates new possibilities for investors in the sector.
Therefore, it is worth paying attention to the investment opportunities that the real estate market can offer right now.
In this post, you learned a lot about the Selic rate. You’ve seen how it influences not only the real estate market, but other investments in the financial sector, and your life in general, haven’t you?
Undoubtedly, it is important to know the subject and evaluate any opportunities that the movement of Selic can bring to your daily life. So, how about taking advantage of the rate reduction in recent years to acquire your property or invest in this sector? See how real estate investments work!