Brazil’s Haddad argues country is ready for interest rate cuts

SAO PAULO (Reuters) -Brazil Finance Minister Fernando Haddad on Friday said the country is about to enter a downward cycle of interest rates, pointing out that inflation is “more behaved.”

“We are about to.. have a downward cycle of interest rates. Inflation is more behaved,” Haddad said in an interview with local broadcaster GloboNews. “Long-term interest rates are falling. GDP is being revised upwards.”

Haddad’s comments follow repeated criticism by his boss, leftist President Luiz Inacio Lula da Silva, over the central bank’s resistance to cutting borrowing costs.

The monetary authority has held Brazil’s benchmark interest rate at 13.75% since September. Central bank chief Roberto Campos Neto has ruled out imminent cuts.

Data published by Brazil’s statistics agency on Thursday showed inflation fell to a two-and-a-half-year low in early May, adding pressure on the central bank to starting lowering rates.

Even if rates fall, the government worries there could be a lag between cuts and rebounding consumption, Haddad added, pointing to measures the government unveiled on Thursday to boost local industry, particularly the automotive sector.

In the interview, Haddad repeated a call for “a continuous inflation target,” instead of the current fixed calendar-year model, which Lula has criticized as being too low. Haddad said an alternative system for targeting inflation is “garnering support.”

The central bank currently targets inflation of 3.25% in 2023 and 3% in 2024 and 2025, with a margin of plus or minus 1.5 percentage points.

Haddad, along with the central bank’s Campos Neto and Lula’s planning minister, sits on the National Monetary Council, which will discuss Brazil’s inflation goals in a meeting in June.

The minister said this year’s inflation could reach 5.5%, but “will never again” surpass 10%, as it did for much of last year.

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