Interest rates — the price of money

An interest rate is the price of borrowing money, expressed as a percentage per year. It is arguably the most important single number in finance, because it sets the cost of credit for everyone and the baseline return on safe savings.

The policy rate sits at the centre

Each major economy has a benchmark policy rate set by its central bank:

• In Brazil, the SELIC, set by the Copom (Comitê de Política Monetária) of the Banco Central do Brasil (BCB).
• In the United States, the Fed Funds rate, set by the Federal Reserve.
• In the eurozone, the ECB's main refinancing rate.

From this single rate, a whole structure of borrowing costs flows outward — bank loans, mortgages, corporate debt, government bond yields.

Why rates move everything

This is the chain to memorize, because it explains most market behaviour:

1. Higher rates make borrowing more expensive and saving more attractive. Spending and investment slow, cooling growth and inflation. Bond yields rise, so existing bonds fall in price. Stocks usually struggle, because future profits are discounted more harshly and safe savings now compete with risky equity.
2. Lower rates do the reverse — they stimulate borrowing, spending and risk-taking, and tend to lift stocks and other assets.

Real vs nominal

The nominal rate is the headline number. The real rate is the nominal rate minus inflation — what you actually earn in purchasing power. Brazil has historically offered high real rates, which is why its bonds attract global capital and support the real. Always ask not just "how high is the rate?" but "how high relative to inflation?"