Brazil central bank chief concerned with doubts about fiscal target

By Rodrigo Campos and Dan Burns

NEW YORK (Reuters) -Brazil’s central bank chief Roberto Campos Neto on Thursday said any change to the country’s fiscal target would raise concerns, following comments by President Luiz Inacio Lula da Silva casting doubt on the government’s vow to erase a budget deficit.

Campos Neto told the Reuters NEXT conference in New York that “there is a lot of uncertainty on whether Brazil is going to be able to actually have a sustainable fiscal path,” adding that it pushes up risk premiums and affects monetary policy.

“The only reason why the central bank worries about that is not because of the fiscal (target) itself, is because that it impacts variables that are important for our decision-making process,” he said, mentioning potential effects on the foreign exchange and interest rate futures markets.

In late October, Lula said his government did not need to erase its primary budget deficit next year, as previously proposed to Congress under new fiscal rules – comments that jarred financial markets and shifted interest rate forecasts.

Since then, Finance Minister Fernando Haddad has broadly reaffirmed Brazil’s commitment to “fiscal balance,” but lawmakers involved in next year’s budget bill are hinting heavily that they aim to loosen the zero-deficit target.

In Thursday’s interview, Campos Neto highlighted that Brazil has approved important reforms since the COVID pandemic, including an overhaul on consumption taxes, which passed the Senate on Wednesday, but acknowledged the uncertainty on fiscal policy.

“And that influences a lot of the variables that are important for us when you make decisions in monetary policy,” he reinforced.

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