Brazil’s economic team intends to unveil a plan to shore up the country’s fiscal credibility before the central bank’s upcoming interest rate decision in a bid to pressure the monetary authority into lowering borrowing costs, according to two people with knowledge of the matter.
(Bloomberg) — Brazil’s economic team intends to unveil a plan to shore up the country’s fiscal credibility before the central bank’s upcoming interest rate decision in a bid to pressure the monetary authority into lowering borrowing costs, according to two people with knowledge of the matter.
Although economists don’t expect a rate cut at the bank’s next meeting on March 22, the sooner the administration of Luiz Inacio Lula da Silva is able to ease investor concerns over public spending, the easier it will be for policymakers to start cutting the benchmark Selic, the people said, asking for anonymity to discuss government strategy.
The new plan would be based on a spending target set during the budget guidelines law for the coming year, together with estimates for revenue and debt, one of the people said. That means, however, that fiscal savings needed to narrow the public deficit will depend on the actual level of revenue obtained by the government. If that falls short of estimates, the economic team would have to come up with measures to adjust the budget. Such details, the person added, are still under discussion.
The proposal, which will replace the current spending cap rule that limits growth of public expenditures to the inflation rate, has been concluded at the Finance Ministry, but still needs to be discussed with Lula and other members of his cabinet, Finance Minister Fernando Haddad told journalists on Monday.
Lula and Haddad have publicly criticized the central bank for holding interest rates at 13.75%, a level they consider an impediment to growth.
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