• Categories
  • Archives

Fearful of World Recession Brazil President Calls on Central Bank to Cut Interest Rates

Brazil's Central Bank president Alexandre Tombini Dilma Rousseff, the president of Brazil,  made her strongest call yet for the Brazilian central bank to continue cutting borrowing costs. At an event in São Paulo she said it was “inadmissible” for policy makers not to take into account the possibility of a recession and even a depression in the global economy. 

Government efforts to contain spending are creating space for the central bank to begin a “cautious” and “responsible” cycle of rate cuts, she said.

“As the financial crisis gets worse, this time we’ll take advantage of it,” Rousseff said to an applauding audience of business leaders. “We hope, and we can, initiate a cycle of reductions in the benchmark rate.”

Unlike in the wake of the September 2008 collapse of Lehman Brothers Holdings Inc., when Brazil waited four months to begin cutting interest rates, policy makers last month preemptively reduced the key rate even as inflation climbed to a six-year high.

“Brazil this time can’t misjudge what’s going to happen here as a consequence of what’s happening abroad,” Rousseff insisted.

The surprise decision August. 31 to cut the Selic rate by a half-point to 12% came a day after Rousseff vowed to take Brazil on a “new pathway” of lower borrowing costs. That prompted analysts to speculate central bank President Alexandre Tombini had yielded to political pressure.

Policy makers cited a “substantial deterioration” in the global economy to justify their decision.

Rousseff’s remarks echo comments from the central bank in its quarterly inflation report that “moderate” rate cuts can help shield Latin America’s biggest economy from the European debt crisis without compromising the government’s inflation targets.

Finance Minister Guido Mantega at the same event said Brazil “has all the ammunition” it needs to bring interest rates closer to levels seen in developed nations.

The same week the central bank cut the Selic rate, the government raised by 10 billion reais (US$ 5.32 billion) its target for the primary budget surplus in August, saying a more restricted fiscal stance can assist the central bank in its fight against inflation.

Mantega repeated at the event his and Tombini’s preference to use monetary policy instead of fiscal stimulus to buffer Brazil’s economy should the global crisis worsen.

Surplus Down

Brazil’s budget surplus before interest payments narrowed in August to its lowest in nine months even as the central bank relies on fiscal policy to help fight the fastest inflation in six years.
 
The primary surplus, which includes federal and local governments as well as state companies, fell to 4.6 billion reais (2.5 billion dollars) from 13.8 billion reais in July, the central bank said in a statement distributed in Brazilian capital Brasília.

The central bank also downgraded the country’s growth projection for 2011 from 4% to 3.5%.

The Brazilian government must help the central bank combat inflation and lower rates by “holding the line” on spending and keeping Brazil’s fiscal house in order, central bank President Alexandre Tombini said in Washington last week. The government earlier this year cut 50.7 billion reais (US$ 27 billion) from its 2011 budget.

Tombini raised Brazil’s benchmark interest rate five times this year before cutting it a half point to 12% on August 31 even as annual inflation through mid-September ran at 7.33%, the fastest in six years. The central bank targets inflation of 4.5% plus or minus two percentage points.
After interest payments, the budget deficit was 17.1 billion reais, its highest since March 2010. The central government posted a deficit of 17.2 billion reais, while regional governments posted a 0.6 billion reais surplus and state companies had a deficit of 0.46 billion reais.

President Dilma Rousseff’s 2012 budget proposal, presented to Congress last month, targets a budget surplus before interest payments of 139.8 billion reais for the federal, state and local governments, the equivalent of 3.1% of GDP.

The federal government may receive less money from oil exploration as congress redefines its rules for distributing royalties. The federal government will reduce its income from oil royalties and a tax on highly productive fields by 1.8 billion reais to help reach an accord on how to share the royalties with non-producing states, daily newspaper O Estado de S. Paulo reported.

Brazil’s economic growth slowed last quarter to 3.2% from a year earlier, down from 4.2% in the first quarter and 7.5% last year, the fastest pace in two decades. The central bank in its latest report lowered its projection for economic growth this year from 4% to 3.5% due to the worsening global economic outlook.

“No country is immune to the consequences of the crisis,” President Dilma Rousseff said in a television interview, but insisted her government was working hard so that Brazil’s economy would be “better protected.”

“The fact that Brazilians are consuming, have income, have work – that will protect Brazil,” she said.

The bank said “the deterioration in the international outlook” and the more restrictive fiscal policies adopted by the government were factors in the downward revision. It also raised its 2011 inflation forecast to 6.4% from its June estimate of 5.8%.

The bank said inflation peaked in August at 7.23 percent. For 2012, the bank estimates that inflation will fall to 4.7% and that by the third quarter of 2013 will hit the 4.5% goal.

The bank’s Monetary Policy Committee thinks that there could be further “moderate” cuts to the basic interest rate, which was lowered in August from 12.5% to 12%. 

Mercopress

Tags:

  • Show Comments (1)

  • capnamerca

    Mmm Hmm . . .
    [quote]No country is immune to the consequences of the crisis,” President Dilma Rousseff said[/quote]

    So, she’s changed her tune a little since last month. I think it’s good that officials in Brazil finally realize that Brazil’s economy isn’t bulletproof. Not so sure that lowering the interest rate is going to stave of inflation though. It generally doesn’t work that way. The tough thing about a pending recession is that it is more responsible toward the citizens to warn them to be frugal, yet that frugality will affect business in a bad way. So, we’ll see which sector is more important to the Rousseff administration. The country, or the businessmen.

    If they could just get a handle on politicians and their business friends stealing all the tax money, it would probably help a great deal.

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Ads

You May Also Like

Brazil Disappointing in Competitiveness in the World… and Falling

The World Economic Forum rated Finland as the most competitive economy in the World ...

Brazil’s Varig: What an Airline Shouldn’t Be

In nearly eight decades of operation in the country, Brazilian civil aviation has been ...

Brazil Champions Animal Welfare at International Conference

The Abef (Brazilian Poultry Exporters Association) went to Cairo, Egypt, from October 20 to ...

Free Trade Starts at Home, Says Brazil

Brazil’s Minister of Foreign Relations, Celso Amorim, said that the priority for Mercosur representatives ...

Survey Shows Brazilians Less Confident and with Lower Expectations

The Brazilian Consumer Confidence Index (ICC) regarding Brazil’s economic situation declined 3.4% between March ...

Huge hole on Brazilian road

By Car, Air or Foot, Brazilians Can’t Escape Chaos and Crime

Brazil is dissolving like an ice cream exposed to the sun. The public authority’s ...

New Data on Brazil’s Low Competitiveness Are Not Accurate, Says Minister

Brazil dropped eight places in the global competitiveness ranking, according to a report released ...

LETTERS

Refavela By Brazzil Magazine The Consulate regularly receives copies of different local publications meant ...

A Story of Sex, Suspense and Spite Set in Brazil, the US and Spain

For Brazilians living in the United States, any American or foreigner who loves Brazil, ...

Ten-Party Coalition in Brazil Demands Justice and Accepts No Deals

Brazilian Deputy Rafael Guerra (PSDB party of Minas Gerais state), Wednesday, August 31, read ...