World Economy

Brazil Government Sees Room to Cut Interest Rates

Brazil Government Sees Room to Cut Interest Rates
Brazil Government Sees Room to Cut Interest Rates

Brazilian Foreign Minister Jose Serra on Sunday said slowing inflation and government efforts to rein in public spending should soon allow for an interest rate cut in Latin America’s biggest country.

Serra’s comments, amid expectations that Brazil’s central bank could lower rates as early as this week after more than three years of tighter monetary policy, come as he and President Michel Temer sought to drum up a positive outlook at a meeting of the so-called BRICS group of developing nations in India, Reuters reported.

“There is room, yes, for a rate cut,” Serra said, speaking to reporters after the BRICS summit, which gathered the leaders of Brazil, Russia, India, China and South Africa.

Many investors, after lower inflation figures last month and an improved outlook for the economy’s recovery, already believe the central bank’s monetary policy committee could begin cutting the benchmark Selic rate at its upcoming meeting on Wednesday.

Inflation in Brazil fell to 8.48% in the 12 months through September from 8.97% in the previous month. Because of rapid price increases in recent years, the committee has kept the rate at 14.25% since July 2015.

Although Brazil remains mired in its worst economic recession on record, and economists forecast continued contraction this year and only slight growth in 2017, Temer earlier Sunday said that Brazil’s economy “is getting back on the right track.”

Since taking over from impeached President Dilma Rousseff, a leftist who was ousted in August over budget irregularities, Temer’s center-right government has focused on efforts to rebalance government books and has proposed a constitutional amendment that would put a ceiling on public spending.

Sixteen of 17 economists surveyed by The Wall Street Journal said they expect the bank to cut its benchmark Selic, currently at 14.25%, at the end of its policy meeting  Oct. 19.

Nine of those analysts expect a cut of 0.25 percentage point; eight predict a half-point reduction. Only one expects the central bank to stand pat.

But the lofty benchmark—among the highest in the world—has been a drag on business investment and consumer spending at a time when Brazil’s economy is struggling to emerge from the worst downturn since the Great Depression.

The central bank said after its last policy meeting in August that it wouldn’t begin a loosening cycle until it saw galloping food prices slow and federal lawmakers make some meaningful effort to shore up Brazil’s shaky public finances. The bank also said it wanted to see market expectations for 12-month inflation decline.

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