Brazil Moves to Index “Poupança” Interest Rates on the SELIC Rate
On May 3, 2012, President Dilma Rousseff issued Medida Provisoria No 567, to effect change in Law No 8.177 which establishes rules on indexation of the economy, among other things. The MP links the interest rate paid on the popular tax-free “Poupança” (savings accounts) to the SELIC rate[i]. The Poupança deposits are an important source of funding for the housing sector as banks have to allocate approximately 65 percent of these funds to loans for the housing and real estate sectors. There are 98 million individuals with a Poupança account.
The SELIC rate has come down rapidly from 12.5 percent in August 2011 to 9 percent in April, 2012 and may come down further to 8.5% in late May, 2012. The Poupança remuneration, which was set at TR (an inflation measure set by the Central Bank)+ 6.17 percent in the past, will be indexed at TR + 0.70 x the SELIC rate in case the SELIC rate comes down to 8.5 percent or below.The indexation will only apply to savings deposited from May 4, 2012 onward. The “new” accounts will remain callable on a daily basis, will be tax exempt and are covered by the deposit guarantee.Withdrawals will be made first from the new savings accounts, unless the account holder decides otherwise.
This is a major step in integrating the financial system of Brazil.
[i]The SELIC Target rate is the benchmark rate set by the Brazilian Central Bank. The target is fixed by the Monetary Policy committee (COPOM).Brazilian SELIC (Special System for Settlement and Custody) is the central depository of securities issued by the National Treasury and the Banco Central do Brasil and a settlement system for outright and repo transactions related to these securities.