Bloomberg News

Rousseff Calls For Lower Interest Rates as Global Economy Slumps

September 30, 2011

Oct. 1 (Bloomberg) -- President Dilma Rousseff made her strongest call yet for the central bank to keep reducing borrowing costs, saying Brazil must seize the opportunity created by the global financial crisis to cut interest rates.

Rousseff, speaking to business leaders in Sao Paulo yesterday, 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. “We hope, and we can, initiate a cycle of reductions in the benchmark rate.”

Yields on interest rate futures plunged following Rousseff’s remarks, with the contract due January 2012 falling 10 basis points to 11.08 percent yesterday. The real weakened 2.1 percent to 1.8794 per U.S. dollar.

Brazil waited four months after the September 2008 collapse of Lehman Brothers Holdings Inc. to begin cutting interest rates. Last month, in contrast, policy makers 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 said. “We are opening a space so that the central bank facing the world crisis, including the threat of deflation and depression in some advanced economies, can start a cautious cycle of responsible reductions in interest rates.”

Surprise Rate Cut

The surprise decision of Aug. 31 to cut the Selic rate by a half-point to 12 percent 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.

The president’s remarks yesterday echoed comments from the central bank in its quarterly inflation report Sept. 29 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, speaking at the same event as Rousseff yesterday, 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 ($5.3 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 yesterday his and Tombini’s preference to use monetary policy instead of fiscal stimulus to buffer Brazil’s economy should the global crisis worsen.

Rousseff also said that Brazil will not manipulate its exchange rate, even though the international financial crisis has heightened the risk that governments will resort to protectionist trade policies.

--Editors: Ken Fireman, Robert Jameson

To contact the reporters on this story: Felipe Frisch in Sao Paulo at Matthew Bristow in Bogota at

To contact the editor responsible for this story: Joshua Goodman at

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