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Hedge-Fund Icon Defends Rate Cut to Bolster ‘Collapsing’ Brazil

Hedge-Fund Icon Defends Rate Cut to Bolster ‘Collapsing’ Brazil

(Bloomberg) -- One of Brazil’s most revered hedge-fund managers is calling on the central bank to further reduce the benchmark interest rate to record lows, as growth disappoints in Latin America’s largest economy.

“I really don’t know what they’re waiting for to cut rates,” Rogerio Xavier, a founding partner at SPX Capital, wrote on his Twitter account Tuesday. “The pension reform will be approved and it won’t change the country’s situation. It will improve the solvency perception, but it’s almost an obligation for the country not to go bust.”

On Tuesday, the central bank signaled through the minutes of its June meeting that fiscal reforms are the main obstacle standing in the way of lower borrowing costs, as failure to pass these measures may prompt both inflation and risks to rise. The monetary authority also saw interruptions to a gradual economic recovery, expecting flat growth in the second quarter.

“The minutes sound like a country that is collapsing,” Xavier said.

While some investors have been saying that lower rates may not provide a spark for the Brazilian economy, Xavier said that one can’t argue that further easing won’t be helpful, adding that a Selic rate at 5% isn’t “a small thing.”

Since 2016, the central bank has slashed borrowing costs to 6.5% from 14.25% after managing to control inflation. Now, with the rate on hold since March 2018 and growth disappointing, a survey of economists expects the Selic rate to end the year at 5.75%. The first cut could come as soon as next month, according to swaps trading.

Read latest results from central bank survey of Brazil economists

The consensus among financial institutions is for pension reform to pass in the third quarter with savings of about 740 billion reais ($192.4 billion) over 10 years.

“We need something to boost the economy and fast,” Xavier said.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editor responsible for this story: Daniel Cancel at dcancel@bloomberg.net

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