ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Banking & Finance

Brazil central bank chief hints at deeper rate cuts

Inflation tamed, South American nation will shift focus to stimulus

SAO PAULO -- Bigger interest rate cuts are an option for Brazil's central bank, Gov. Ilan Goldfajn told The Nikkei, signalling an emphasis on supporting South America's largest economy as inflation falls faster than expected.

Gov. Ilan Goldfajn of the Central Bank of Brazil.

The central bank has lowered its benchmark rate in each of monetary policymakers' four meetings since last October, when it made the first cut in four years. The bank reduced the rate by 25 basis points in each of the first two cuts, followed by two drops of 75 basis points apiece. The rate now stands at 12.25%.

Ahead of the next interest rate decision in April, the central bank is looking at factors like "inflation expectations [and] economic activity. We are open to making any decision," said Goldfajn.

Recent success in curbing inflation has given the central bank a freer hand to lower interest rates. Consumer prices rose 4.76% on the year in February, the slowest pace in six and a half years, down from rates of more than 10% between the end of 2015 and early 2016.

An upturn in the real against the dollar since last year has helped push down prices of imports. Goldfajn said the bank expects inflation to reach its target of 4.5% in April to June.

The bank's priority will shift from braking inflation to stimulating the economy, which shrank 3.6% in real terms in 2016, recording a second straight year of contraction. But Goldfajn expects a return to growth in 2017 as recent price rises in iron ore and other commodities help the recovery in the resources sector.

Manufacturing and agriculture will emerge from recession sooner, but "the service sector will take longer because it was the last one to be affected."

Regarding Brazil's largest export market, China, which lowered its target growth rate to around 6.5% this year, Goldfajn sees the revised goal as sufficient to ensure demand for iron ore and Brazilian exports, calling it "good news."

The corruption scandal involving state-run oil company Petrobras continues to cause instability in the government. But President Michel Temer's administration's "policies have moved to the right direction toward more fiscal responsibility," Goldfajn said, adding that this would provide a tailwind for the economy.

As for U.S. interest rate hikes, while they may lead to a rise in borrowing costs for emerging markets, Brazil is prepared, he said. When asked about the possibility of protectionist policies from U.S. President Donald Trump's administration, Goldfajn said there would not be a big impact on Brazil's relatively closed economy.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends January 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media