Bloomberg News

Brazil Rate Cut an ‘Antidote’ for Real Gains, Mantega Says

September 02, 2011

(Adds Mantega quote in second paragraph.)

Sept. 2 (Bloomberg) -- This week’s reduction in Brazil’s benchmark interest rate will help curb the appreciation of the real, and economic conditions are in place for further cuts in borrowing costs, Finance Minister Guido Mantega said.

For “the next two or three years, the conditions will be there for rates to keep falling,” Mantega told reporters in Sao Paulo today. “Falling rates are a good antidote for the gains in the real.”

Brazil’s central bank cut its benchmark interest rate a half point on Aug. 31 after raising borrowing costs at its five previous meetings. The day before the decision, President Dilma Rousseff said interest rates should begin to fall as the government reduces spending.

While the surprise rate cut will stimulate economic growth in the fourth quarter and next year, Latin America’s biggest economy doesn’t need any fresh anti-inflation measures, Mantega said. The pace of price increases is slowing and will reach the central bank’s 4.5 percent inflation rate target “some time” next year, Mantega told reporters later in a conference call to discuss Brazil’s second quarter economic performance.

Gross domestic product in the second quarter rose 3.1 percent from a year earlier, the national statistics agency reported today. That’s in line with the 3.2 percent median estimate of 37 economists surveyed by Bloomberg. GDP expanded 0.8 percent from the first three months of the year.

The central bank, in a statement, said the second quarter growth was in line with Brazil’s equilibrium pace.

Economic growth is likely to slow in the third quarter of 2011 then pick up in the last three months of the year, Mantega said. Growth next year can reach as high as 5 percent, he said.

Rousseff’s administration is relying on a mix of higher interest rates, spending cuts and so-called macro-prudential policy aimed at curbing credit to contain inflation that ran at a six-year high of 7.1 percent in August.

Mantega said the government didn’t exert pressure on the central bank, which lacks independence like the Federal Reserve or European Central Bank, to cut the Selic rate to 12 percent.

“The Finance Ministry isn’t looking to interfere in rate expectations,” Mantega said. “Brazil continues to have one of the most conservative monetary policies in the world.”

A new round of quantitative easing by the Fed could bring “problems” for Brazil and other emerging markets, by weakening the U.S. dollar that’s at the source of what he called a global “currency war.”

-- Editor: Richard Jarvie, Joshua Goodman

To contact the reporter on this story: Alexander Ragir at aragir@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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