Economic news

Brazil’s ministers see room for rate cuts as central bank keeps cautious stance

2023.05.17 11:58


© Reuters. FILE PHOTO: Brazilian Finance Minister Fernando Haddad smiles before a ministerial meeting to celebrate the first 100 days of Brazil’s President Luiz Inacio Lula da Silva government at the Planalto Palace in Brasilia, Brazil April 10, 2023. REUTERS/Ueslei

BRASILIA (Reuters) – Brazil’s economic ministers on Wednesday highlighted the potential for monetary easing to kick off, while the central bank continued to signal caution due to concerns over expectations of rising inflation.

“My understanding that there is room for a cut cycle is no offense,” Finance Minister Fernando Haddad said during a hearing at the Lower House, clarifying that he does not question the central bank’s authority to set rates.

Haddad stated there are conditions for monetary easing “without any setbacks concerning inflation,” emphasizing that the capital market is at a standstill amid the high-rate environment, which could hinder more vigorous economic growth.

Meanwhile, Planning Minister Simone Tebet pointed out the favorable conditions for lowering interest rates in August, citing a proposed new fiscal framework as evidence of President Luiz Inacio Lula da Silva’s government’s commitment to economic responsibility.

The next monetary policy meeting of the central bank is scheduled for June 20-21.

Central bank governor Roberto Campos Neto, however, gave no hints on monetary easing, instead stressing that Brazil faces challenges in consolidating disinflation and again highlighting concerns with rising inflation expectations.

While new fiscal rules, which are still pending approval by Congress, could be helpful, there is no direct correlation between the proposed fiscal framework and interest rates, said Campos Neto.

“The convergence of inflation remains conditioned on other macroeconomic variables, such as the reaction of inflation expectations, public debt projections, and asset prices,” he said.

Lula and his political allies have repeatedly blasted the current interest rate level, which has remained steady at a 13.75% cycle-high since September despite declining inflation.

Haddad also said during the hearing that the economy is expected to grow about 2% this year. He regarded this rate as still low, emphasizing the need for the country to aspire to more robust expansion.

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