how the Selic Rate impacts the payroll

Brazil has been following the credit market, I learned that the Selic rate increased, due to constant updates carried out by the Central Bank, through the Copom (Monetary Policy Committee).

Therefore, INSS beneficiaries, public servants and formal workers want to know what impacts this increase can have on the payroll loan.

Understanding how the Selic increase affects other economic and financial indicators is very important for all consumers, especially if you are thinking of taking out credit in the coming months.

To understand more about and learn how to unpaid selic rate directly influences this credit line, check out the full text!

What is the Selic rate?

Let’s start by knowing the meaning of Selic, which is the Special Settlement and Custody System. Its about a virtual Central Bank program where National Treasury bonds are bought and sold daily.

To better understand the selic rate, it is important to know what interest really means, which is nothing more than the cost of money.

The Selic Rate is the base rate of our economy, and from it all other interest rates are set. It corresponds to the rates of one-day loans calculated by financial institutions that use federal government bonds as collateral.

In other words, it corresponds to the interest on government bonds offered by the government in this system. And as we said, this is the rate that define the other interest loans, financing and return on financial investment activities.

In other words, the country’s financial day-to-day is directly influenced by the variation in this rate, which is what financial institutions rely on to charge for the services offered.

The person responsible for setting the Selic rate is the Central Bank’s Monetary Policy Committee, known as Cup.

There is a meeting every 45 days to define whether this rate increases, decreases or remains the same.

This year it suffered many variations. It started the year at 2% and went through percentage adjustments sequentially to 2.75%, 3.50%, 4.25% and the selic interest rate today, in August 2021, increased to 5.25% per year.

What is the Selic Rate for and how does it work?

The selic rate has a regulatory function in the market. This means that it is a point of balance against other rates, including inflation.

That’s why the Selic rate ends helping in the course of the credit market in Brazil. Let’s see in practice how this works!

When inflation rises, consumption by citizens automatically decreases and investments in the country are also reduced.

And when this happens, it is necessary to search solutions to bring inflation further down and one of the alternatives is increase the Selic Rate.

It works like a chain reaction: the rate increases and the consumption power ends up decreasing, so the prices need to decrease also for the products to be sold and this stabilizes the economy.

Currently, Copom’s objective is to lower inflation, so the alternative related to the Selic rate is to increase the rate. The Committee has already explained that uncertainty about economic growth remains high.

Evolution of the Selic Rate increase in 2021

Let’s understand a very important point, the Selic rate is directly linked to federal government bonds, therefore its change impacts on the yield of the bonds.

How important is it to understand this? It is to know that for this reason the cost of raising funds for banks is also changed.

If the base rate decreases, the cost of funding for financial institutions will also decrease. But when it goes up, the cost goes up. In this case it turns out that the interest on borrowed money is higher.

Check the history of the Selic Rate increase in 2021 in the chart below:

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How does the Selic rate influence the payroll?

Now that you understand what the Selic Rate is and why it increased in 2021, let’s see how it influences the payroll loan.

Well, first of all, it is worth remembering that the payroll loan is a type of loan where the retiree or pensioner has the monthly amount deducted directly from their payroll.

This type of loan offers a lower risk, which already causes a decrease in the interest rate.

Companies that offer payroll loans, such as my everything., they need to adapt their product to the new rates and therefore the loan rate may rise as well.

But calm down, companies don’t always have the same rate of rise as the Selic Rate, it serves only as a base.

Neither is the increase in the payroll rate immediate or as defined by the Copom. However, it is a fact that if the Selic rate rises, payroll rates tend to rise as well.

Given this, it was easy to understand the reason why the Selic rate influences credit operations.

The basic interest rate is very dynamic, which causes the most varied credit operations, even with different interest rates, to be affected by the increase.

What does this mean overall? To simplify for you, the interest rate that will be charged on credit cards, financing, loans can go up. This ends up reflecting also in the payroll loan.

But calm down! The payroll loan remains the best option, as its base rate, determined by law, remains the best and lowest in the market.