Brazil’s Central Bank Chief Sees Room for More Rate Cuts
Brazil’s Central Bank Chief Sees Room for More Rate Cuts
(Bloomberg) -- Brazil’s central bank chief sees room for additional interest rate cuts even as Latin America’s largest economy begins to show signs of recovery.
“We are becoming more optimistic on the economy, though there’s still a lot of slack,” Roberto Campos Neto said on Friday in Washington, where he is attending the annual meetings of the International Monetary Fund. “The labor market is showing signs of improvement and will continue to improve.”
Campos Neto, 50, is commanding an easing cycle that’s brought borrowing costs in Latin America’s largest economy to a record low. He’s navigating an outlook marked by dormant inflation, weak domestic growth and a global environment that’s remained largely favorable to emerging markets.
Later this month, policy makers are expected to deliver their third straight half-point cut to the benchmark Selic rate, which stands at an all-time low of 5.5%. Still, an unexpected consumer price drop in September has reignited investor bets that even more aggressive easing lies ahead.
Itau expects the central bank to cut rates to 4% in 2020 on the back of inflation that will end next year at 3.7%, or 30 basis points below target. Some economists won’t rule out borrowing costs falling even further than that.
Read more: BRAZIL REACT: Sept. Deflation to Fuel Bets on Aggressive Easing
Record-low rates have been facilitated by advances in belt-tightening measures. As soon as next week, Brazil’s Senate is expected to give final approval to a pension reform that will save the government some 800 billion reais ($193 billion) in a decade. Meanwhile, consumer demand and investments remain weak, and economic growth is seen hovering around just 1% for the third year in a row.
Privatization Flows
Campos Neto said Brazil bank reserve requirements are high and can be lowered by 100 billion reais. In later comments to reporters, he said policy makers will have a better idea in 2020 or 2021 on how much they can lower those reserve levels.
Brazil has seen smaller inflows than officials would have liked. Still, government plans to privatize billions of dollars in state-controlled assets should bring new resources to the country, and those flows may prompt the real to strengthen going forward.
Brazil’s real has weakened 10% in the past three months, the second worst performer among emerging market currencies, as a U.S.-China trade spat weighs on global growth projections and reduces the appetite for riskier assets. Even so, there’s little sign that a weaker currency is pushing up consumer prices.
By the central bank’s own estimates, inflation will remain below target through 2021. Furthermore, a weakening global economy has prompted a wave of monetary easing from Mexico to Russia to the U.S.
To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net;Francine Lacqua in London at flacqua@bloomberg.net
To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, ;Walter Brandimarte at wbrandimarte@bloomberg.net, Matthew Malinowski
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