Brazil will announce tomorrow plans to reduce government-guaranteed returns on savings accounts in a bid to make room for more interest rate cuts, a government official said.
President Dilma Rousseff discussed the changes in a meeting today with Finance Minister Guido Mantega, said the official, who is familiar with the discussions and asked not to be named because the matter isn’t public yet.
Brazilian policy makers lowered the country’s benchmark rate last month by 75 basis points to 9 percent, near a record low. Further reductions may push yields on local bonds below government-mandated returns of more than 6 percent on savings accounts, known as poupanca, after taking into account taxes and fees collected by asset managers. That could prompt investors to shift money into tax-free savings accounts, making it more difficult for companies and the government to sell bonds.
The yield on interest rate futures maturing in January 2014, the most traded in Sao Paulo, extended an earlier drop on speculation the government will remove the technical obstacle to reducing the benchmark rate, said Diego Donadio, Latin America strategist at BNP Paribas Brasil SA. The contract fell 22 basis points, or 0.22 percentage point, to 8.54 percent at 4:20 p.m. local time.
‘By All Means’
“Growth is slow and the government is trying by all means to accelerate economic expansion,” Donadio said in a phone interview from Sao Paulo. “Interest rates will be further cut.”
Traders are wagering the central bank will reduce the overnight rate to as low as 8.25 percent, after policy makers said last month additional cuts will be “conducted with parsimony.” Since August, the bank has reduced the Selic rate by 350 basis points.
Valor Economico reported earlier today that Rousseff will meet tomorrow with lawmakers, unions and business leaders to seek support for the measures, which will be sent to Congress. The Finance Ministry declined to comment in an e-mail.
Rousseff’s approval rating, which stood at 77 percent according to a March poll by Ibope, makes it easier for the government to enact changes that opposition politicians have compared to former President Fernando Collor’s 1990 freezing of savings accounts, said the official.
The government also plans to announce tomorrow a reduction of the tax rate charged workers on their earnings from a profit- sharing program, the official said. The tax break is part of an effort to boost consumer spending and economic growth this year, the official said.
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