The economic team of Brazil intends to present a plan to strengthen fiscal credibility of the country before the next decision of the central bank on interest ratesin an attempt to put pressure on the monetary authority to cut borrowing costs, according to two people with knowledge of the matter.
Although economists do not foresee a rate cut for the bank’s next meeting on March 22, the sooner the Administration of Luiz Inacio Lula da Silva be able to alleviate investor concerns about public spending, the easier it will be for policymakers to start cutting the benchmark Selic index, said the people, who asked to remain anonymous to discuss the government’s strategy.
Economic weakness puts Lula’s “barbecue and beer” at risk
The new plan would be based on a spending target established during the budget guidelines law for the coming year, along with estimates of income and debt, one of the people said. However, this means that the fiscal savings necessary to reduce the public deficit will depend on the real level of income obtained by the Government.
If that falls short of the estimates, the economic team would have to devise measures to adjust the budget. Such details, the person added, are still under discussion.
Proposal under review
The proposal, which will replace the current spending cap rule which limits the growth of public spending to the rate of inflation, 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 reporters on Monday. .
Lula and Haddad have publicly criticized the central bank for keeping interest rates at 13.75%, a level they see as an impediment to growth.
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