Bloomberg News

G-20, Brazil May Make Coordinated Rate Cuts, Goldman Says

September 30, 2011

(Updates with O’Neill’s comments starting in second paragraph.)

Sept. 30 (Bloomberg) -- The Group of 20 nations may agree to take coordinated measures to ease monetary policy at their November meeting as global growth slows, according to Goldman Sachs Asset Management Chairman Jim O’Neill.

“Central banks have to be forward looking,” said O’Neill in an interview in London today. “I wouldn’t be completely surprised if we had some kind of coordinated move at the November meeting and, if there were, Brazil would definitely play a role in that.”

Brazil’s central bank unexpectedly cut the Selic benchmark interest rate by half a percentage point to 12 percent on Aug. 31 as the risk of recession in Europe and the U.S. shifted policy makers’ focus away from the fastest inflation in six years. Turkey and Israel have also lowered rates to protect their economies from the impact of Europe’s debt problems.

Brazil’s decision to cut the benchmark rate was “quite smart,” O’Neill said. The probability of the country meeting its inflation target of 4.5 percent next year has “risen significantly” because of the global economic crisis, he said.

Europe’s debt crisis led investors to dump emerging market assets in the past two months, pushing the real down 18 percent against the dollar since the end of July. The Brazilian currency had gained 13 percent in the previous 12 months.

The real needs to weaken a further 10 percent to 15 percent to make Brazilian stocks more “interesting,” according to O’Neill, who ranks Brazil in “rising third” place for equity investment among the so-called BRIC nations, behind China and Russia and ahead of India. China is the “most compelling” and “very cheap,” said O’Neill, who coined the term BRIC in 2001.

“If we had a further decline in the real, I think the Brazilian stock market would look more interesting than it has for a year,” he said.

--Editors: Philip Sanders, Harry Maurer

To contact the reporters on this story: Karen Eeuwens in London; Laura Price in London

To contact the editor responsible for this story: Francisco Marcelino in Sao Paulo

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