By PEDRO HENRIQUE M. ANICETO*
Criticism of monetary policy and its implications for the development of Brazil
Today, August 14th, students, workers and various social movements are on the streets under the banner “Less interest, more education”. The act, called by the National Union of Students (UNE), is not only a demonstration in defense of more investments in education, but a blunt criticism of the monetary policy adopted by the Central Bank, which, by maintaining high interest rates, suffocates the economic and social growth in Brazil. This text seeks to explore the impacts of this policy, the importance of the interest rate and the need to rethink the autonomy of the Central Bank, placing it within a critical perspective of political economy.
The interest rate is, in simple terms, the cost of money. It is determined by the Central Bank and directly influences the cost of loans, the return on financial investments and, consequently, consumption and investment decisions throughout the economy. When the Central Bank increases the interest rate, it makes credit more expensive, discourages consumption and investment, and, theoretically, reduces inflationary pressure. On the other hand, when the interest rate is reduced, credit becomes more accessible, stimulating consumption and investment, which can lead to economic growth.
The importance of the interest rate lies in its role as an economic policy tool. It is mainly used to control inflation, but its implications go far beyond that. The interest rate affects the level of economic activity, unemployment, income distribution and, ultimately, social well-being. In a country like Brazil, where inequality is extreme and where millions of people depend on public policies to have access to basic rights, the definition of the interest rate cannot be seen just as a technical decision.
It is, above all, a political decision with profound social implications. In recent years, the Central Bank of Brazil has maintained interest rates at high levels, even in the face of clear signs of economic stagnation. This stance reflects an orthodox view of monetary policy, which prioritizes controlling inflation above all else, including economic growth and social well-being. This approach, however, deserves critical analysis.
Keeping the interest rate high has serious consequences for the economy. First, it discourages productive investment. Companies that could expand their operations, create jobs and contribute to GDP growth end up postponing or canceling their investment projects due to the high cost of credit. Secondly, rising interest rates burden consumers, especially those with lower incomes, who depend on credit to finance basic consumption, such as housing and education.
Furthermore, a restrictive monetary policy, such as the one that has been adopted, tends to increase unemployment and precarious work, increasing social inequality. By keeping interest rates high, the Central Bank hinders economic recovery and makes Brazil less competitive on the international stage. Foreign companies, upon observing the high cost of operating in Brazil, choose to invest in other countries, further harming economic growth and job creation.
One of the arguments used by the Central Bank to justify maintaining high interest rates is the fight against inflation. However, it is crucial to analyze the real origin of inflation in Brazil. In many cases, inflation is not the result of excess demand, but rather factors such as financial speculation and market distortions. Speculative inflation occurs when companies and financial agents increase the prices of goods and services, not due to a real increase in costs, but due to inflationary expectations or the search for greater profit margins.
This type of inflation is especially common in economies with concentrated markets, where a few companies dominate entire sectors and have the power to manipulate prices. In Brazil, sectors such as fuel and food are often targets of speculation, resulting in price increases that do not reflect economic reality.
The zero deficit policy, defended by the Ministry of Finance, worsens this scenario. By insisting on strict control of public accounts, even in periods of relatively low economic activity, the government restricts its investment capacity, including in essential areas such as education and infrastructure. This policy, which mainly aims to please the financial market, disregards social needs and the long-term impact of cutting public investments. The result is a vicious circle: the lack of public investment limits economic growth, which in turn justifies the maintenance of a restrictive fiscal and monetary policy.
The predominant view among economic policy makers in Brazil is that economics is an exact science, whose decisions must be made based on technical calculations and mathematical models. This view disregards the fact that economics is, first and foremost, a social science, which deals with the distribution of resources and power in a society. Economic decisions are not neutral; they reflect political choices that benefit some groups at the expense of others.
Currency, as a central object of the economy, is one of the most political instruments that exist. The way it is managed, the policies that determine its circulation and the interests that guide these policies are deeply political. The autonomy of the Central Bank, defended by many on the grounds that it guarantees “technical exemption”, is, in fact, a way of supposedly depoliticizing decisions that are, by nature, political. By separating the Central Bank from social demands and needs, we deny the political nature of the economy and compromise the country's future.
In this context, it is urgent to rethink monetary policy and the autonomy of the Central Bank. Maintaining high interest rates and insisting on a zero-deficit policy not only restricts economic growth, but also deepens social inequalities. It is necessary to adopt an economic policy that recognizes the centrality of social development and that sees public investment, especially in education, as a driver for sustainable and inclusive growth.
UNE, by calling for the “Less Interest, More Education” act, draws attention to the need for a new economic approach. An approach that recognizes that economics is a social science, that monetary and fiscal decisions have profound political implications, and that economic development cannot be sacrificed in the name of inflation that is often more the result of speculation than excess of demand.
It is time to put social development at the center of economic decisions. It is time to recognize that education is the main driver for a prosperous and fair future. And it's time to understand that economics, as a social science, must serve the people, and not the interests of a small financial elite. This August 14th, we defend less interest and more education as pillars of a fairer, more developed Brazil with opportunities for all.
*Pedro Henrique M. Aniceto is studying economics at the Federal University of Juiz de Fora (UFJF).
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