The Price of Money: Is Brazil Holding Back Its Own Potential?

Brazil is one of the world's great economic paradoxes.

It has extraordinary natural resources, a huge domestic market, world-class agriculture, sophisticated industries, talented people and enormous entrepreneurial energy. It is capable of producing almost anything it needs and has the scale to become one of the world's most prosperous economies.

And yet, for millions of ordinary Brazilians, building wealth remains remarkably difficult.

Why?

One part of the answer may be sitting in plain sight: the price of money.

When money becomes a privilege

At the time of writing, Brazil's benchmark Selic rate stands at 14.25% per year, following three consecutive reductions in 2026. The Central Bank argues that maintaining sufficiently restrictive monetary conditions is necessary to bring inflation back towards its target.

That is the conventional economic argument.

But there is another side to the story.

The Selic is not the rate an ordinary Brazilian necessarily pays when borrowing money.

According to Brazil's Central Bank, the average interest rate on new credit reached 32.4% per year at the end of 2025, with the average banking spread reaching 21.4 percentage points. In non-earmarked credit, the average rate was 47.2% per year.

These numbers tell us something important.

Money has a very different price depending on who you are.

If you already have substantial capital, high interest rates can be attractive. Your money can generate income simply by being invested.

If you have little capital and need to borrow, the same environment can become a significant financial burden.

That creates a powerful economic divide:

Capital earns.Debt costs.

And the person with the least financial flexibility can end up paying the most for access to money.

The vicious circle

Imagine a young Brazilian family trying to improve its life.

1. They want a home.

2. They need a car to get to work.

3. They want to furnish their house.

4. Perhaps they want to start a small business.

None of these ambitions are extraordinary. They are the foundations of a normal middle-class life.

Affordable credit can accelerate that journey.

Expensive credit can delay it for years.

The family borrows because it has to. Interest consumes part of its monthly income. Less income is available for consumption, education, investment or saving. The family therefore struggles to accumulate the capital that would eventually allow it to rely less on credit.

The cycle becomes:

Low wealth → dependence on credit → expensive interest → less disposable income → less saving → continued dependence on credit.

That is not necessarily a conspiracy.

It is something potentially more subtle and more difficult to solve:

a system of incentives that can reproduce inequality even when nobody explicitly intends it to.

But doesn't Brazil need high interest rates to control inflation?

This is where the debate becomes interesting.

The Central Bank's argument is perfectly understandable. If demand grows faster than the economy's ability to supply goods and services, prices can rise. Higher interest rates make borrowing more expensive, reduce some forms of consumption and investment, and can help bring inflationary pressure down.

There is evidence that monetary policy works in Brazil. IMF research estimates that monetary-policy changes do pass through significantly to lending rates.

But monetary policy is not a magic switch.

High interest rates also make investment more expensive.

A company considering a new factory, additional machinery, technology or employees must ask whether the expected return will justify the cost of capital.

If the answer is no, the investment may not happen.

And investment is precisely what increases productive capacity.

This creates a difficult paradox:

The policy designed to prevent demand from becoming excessive can also discourage the investment required to increase supply.

Brazil is not short of economic potential

This is perhaps the most frustrating part.

Brazil is not an economy without growth.

Official figures show that Brazilian GDP increased 2.3% in 2025, reaching approximately R$12.7 trillion. In the first quarter of 2026, GDP increased another 1.1% compared with the previous quarter.

The IMF describes the Brazilian economy as remarkably resilient and projects medium-term growth of around 2.5%, while also identifying high public debt and weak productivity growth as important structural challenges.

So Brazil clearly has the capacity to grow.

The question is whether it can grow faster, more productively and more inclusively.

What if Brazil made wealth creation easier?

Imagine a different financial environment.

A small business owner can borrow at a reasonable rate to buy equipment.

A young couple can finance a home without spending decades paying disproportionate amounts of interest.

A family can replace an unreliable car without turning the purchase into a financial crisis.

An entrepreneur can borrow to expand a successful business.

Companies can invest because the expected return comfortably exceeds the cost of capital.

1. More people can save.

2. More people can invest.

3. More people can become owners rather than permanent borrowers.

That creates a very different economic cycle:

Affordable credit → investment → production → employme nt → income → consumption → saving → investment.

That is the virtuous circle a growing economy wants.

The banking system is not the enemy

It is important to be fair.

Banks perform an essential economic function. They mobilise savings, allocate capital, process payments, provide liquidity and absorb financial risk.

Brazil has also seen increased competition from fintechs. IMF research found that greater fintech competition between 2018 and 2024 was associated with lower lending rates and narrower net interest margins for traditional banks.

So the answer is not simply to attack banks.

The better question is:

Does the financial system create enough competition and efficiency to ensure that the benefits of capital reach the productive economy and ordinary consumers?

That is a much more important question.

From borrowers to investors

Perhaps the greatest measure of a successful economy is not how many people can borrow money.

It is how many people eventually no longer need to borrow it.

A healthy economic system should help people move through stages:

Borrower → homeowner → saver → investor → wealth creator.

If someone starts with nothing, borrows responsibly to buy a home, builds equity, begins saving and eventually invests, the financial system has helped create a new participant in the country's capital base.

That person is no longer simply consuming financial services.

They are contributing capital to the economy.

Multiply that transformation across millions of households and the potential becomes enormous.

Brazil's opportunity

Brazil does not need to become another country.

It needs to make better use of what it already possesses.

The country has the resources, population, entrepreneurial spirit and domestic market to support much greater prosperity.

The challenge is creating an environment where capital flows towards productivity rather than simply rewarding the possession of capital.

• Interest rates matter.

• Competition matters.

• Fiscal discipline matters.

• Productivity matters.

• Education matters.

• Tax reform matters.

• But above all, incentives matter.

If the system rewards people for producing, investing, employing and creating value, more people will do it.

If the system makes productive investment unnecessarily expensive while making financial returns increasingly attractive to those who already possess capital, wealth becomes harder to distribute.

The question worth asking

I am not an economist.

But perhaps economics sometimes becomes unnecessarily complicated when the fundamental question is quite simple:

Does the system make it easier or harder for ordinary people to build wealth?

Brazil has extraordinary potential.

It does not need to suppress that potential.

It needs to unlock it.

Because the objective of a successful economy should not simply be to control inflation, protect financial stability or produce a respectable GDP number.

It should be to create an environment where ordinary people can work, invest, save, build businesses, own homes and gradually become wealthier.

A country truly flourishes when wealth creation stops being a privilege of those who already have capital and becomes an opportunity available to those willing to create it.

**Brazil has the ingredients.

Perhaps what it needs most is a financial system that allows more Brazilians to use them.**

Does it really make a difference who is President of Brazil? Perhaps less than many voters imagine. The President can influence fiscal policy, taxation, legislation and the people appointed to key institutions. But when it comes to the price of money, the President does not hold the steering wheel. Brazil's Central Bank has autonomy, and the Copom—not the President—sets the Selic.

So perhaps the real question isn't who occupies the presidential palace. Perhaps it is who controls the economic levers that ultimately determine what it costs ordinary Brazilians to live, borrow, invest and build wealth.

Take care!

Prof. Carl Boniface

Vocabulary Builder

Word	Meaning in English	Portuguese
Trade-off	A situation where you gain something but have to give something else up	Compromisso / troca
Burden	Something difficult that causes worry, difficulty or expense	Fardo / peso
Flourish	To grow, develop or succeed strongly	Prosperar
Wealth	Money and valuable possessions, especially accumulated over time	Riqueza
Borrower	A person or company that receives money and must repay it	Mutuário / tomador de empréstimo
Lend	To give someone money temporarily, expecting it to be returned	Emprestar
Down the road	At a later point in the future	Mais adiante / no futuro
Thrive	To grow successfully and become strong or successful	Prosperar / crescer
Struggle	To have great difficulty doing or achieving something	Lutar / enfrentar dificuldades
Stakeholder	A person or group affected by or interested in a decision	Parte interessada

Questions & Answers

Choose the best vocabulary word to complete each sentence. The answers are mixed up, so don't simply follow the order of the vocabulary list.

1. A person who receives money from a bank and has to repay it is called a __________.

2. Brazil has enormous economic potential, but millions of people still __________ to build financial security.

3. Lower interest rates may encourage investment, but they can also increase inflation. This is an example of a __________.

4. A business needs the right conditions to __________ and create new jobs.

5. The monthly repayment became such a financial __________ that the family could no longer save money.

6. If banks __________ money at lower rates, more businesses may be able to invest and expand.

7. A country can __________ when its businesses are productive and its people have opportunities to improve their lives.

8. The situation may look difficult today, but things could change significantly __________.

9. A successful economic policy should consider every major __________ affected by the decision.

10. Building __________ is not simply about earning money; it is also about saving, investing and creating assets over time.

Discussion

Discuss these questions with a partner:

1. Do you think high interest rates protect an economy or hold it back? Why?

2. Should central banks have complete independence from politicians?

3. What do you think is more important: controlling inflation or encouraging economic growth?

4. Should banks make it easier for ordinary people to become investors rather than permanent borrowers?

5. What could Brazil do to help more people build wealth and improve their standard of living?

Challenge: Try to use at least three vocabulary words during your discussion.

Answers

1. Borrower

2. Struggle

3. Trade-off

4. Flourish

5. Burden

6. Lend

7. Thrive

8. Down the road

9. Stakeholder

10. Wealth