Bloomberg News

Mantega Says Brazil Will Continue ‘Rigorous’ Inflation Fight

September 02, 2011

Sept. 2 (Bloomberg) -- Brazil will remain vigilant against inflation in the wake of the central bank’s decision to cut interest rates, Finance Minister Guido Mantega said.

“There can be no doubt about us continuing our rigorous strategy of containing inflation,” Mantega said in an interview in Sao Paulo.

A more restrictive fiscal policy will assist the central bank in its inflation fight and complement a “more active” use of monetary policy, Mantega said. Critics of the bank’s decision to lower interest rates while inflation is running at a six-year high of 7.1 percent are unfounded, he added.

“Brazil has some of the highest reserve requirements and the highest interest rate in the world,” he said. “If anyone expresses doubts about the seriousness of our monetary policy they must be joking.”

A recent spike in food prices caused by a poor harvest in the U.S. will be temporary, Mantega said.

Mantega said a reduction in spending this year and the decision to increase the government’s budget surplus before interest payments target are helping to ease inflationary pressures. The government has no intention of taking advantage of special accounting rules allowing it to discount up to 40 billion reais ($24 billion) in investments from its 2012 budget goal, he said.

“That escape valve is there only in case of a tragedy in the international economy,” he said. “If this isn’t exemplary fiscal behavior, I don’t know what is.”

As part of its campaign of fiscal austerity, the government won’t authorize any salary increases for government employees next year, Mantega said. Only workers in the federal judicial branch whose request for a raise is still under consideration may see wages increase in 2012, he added.

While Mantega said he is against raising taxes, the government needs to negotiate with Congress a solution to the country’s health care problems that have been taking a toll on the budgets of Brazil’s 27 state governments.

“I don’t know how it’s going to be solved,” Mantega said. “We’re going to discuss a solution with the Congress that doesn’t imply an increase in federal government spending.”

To contact the reporter on this story: Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

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


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