SAO PAULO – Brazil's central bank believes the entire cycle of interest rates can be brought lower because of a unique combination of domestic and global effects, the head of the institution said in an interview published in Sunday's edition of the O Estado de S. Paulo newspaper.
Alexandre Tombini, president of Brazil's central bank, reaffirmed in the interview the central bank's autonomy over rate hikes, and said he wasn't bowing to pressure from President Dilma Rousseff.
"The Selic has been falling, leading to a significant reduction in the real interest rate, because of a very specific combination of internal and external factors, and not to please President Dilma," Tombini said.
Rousseff set a goal of bringing down interest rates when she first took office, and recently authorized a change in savings accounts that would allow the central bank to cut interest rates below 8.5%.
There has been some criticism that she has been forcing the central bank to cut rates, even though inflation has been falling, as many economists expect price pressures to resurge later this year as the economy picks up.
The central bank embarked on a series of major rate hikes in August, bringing the Selic rate down to 9% from 12.5%, and is widely expected to continue cutting at the next meeting later this month.
In the interview, Tombini said that if rates had to be raised again in the future, he wouldn't hesitate. But rate hikes would start from a much lower level of real interest rates, he said. "Economic cycles will always exist," Tombini said.
Brazil has for many years operated at a point of equilibrium based on very high interest rates, he said. Using this opportunity to lower rates could lead the economy to a better point of equilibrium, Tombini said, adding that it must always be anchored on central bank autonomy and a functioning inflation-targeting system.
At the beginning of the year, expectations at central banks around the world, including Brazil's, were for a global economic recovery, he said.
That led the central bank to say in March that it wouldn't be lowering interest rates below the historical low of 8.75%. However, circumstances have changed, Tombini said, and there is a less optimistic view of the U.S. and European economies.
That led the central bank to withdraw the floor for future rate cuts. "But growth will come," he said, adding that economic growth should be stronger in the second half than in the first half of the year.
foxbusiness.com
Alexandre Tombini, president of Brazil's central bank, reaffirmed in the interview the central bank's autonomy over rate hikes, and said he wasn't bowing to pressure from President Dilma Rousseff.
"The Selic has been falling, leading to a significant reduction in the real interest rate, because of a very specific combination of internal and external factors, and not to please President Dilma," Tombini said.
Rousseff set a goal of bringing down interest rates when she first took office, and recently authorized a change in savings accounts that would allow the central bank to cut interest rates below 8.5%.
There has been some criticism that she has been forcing the central bank to cut rates, even though inflation has been falling, as many economists expect price pressures to resurge later this year as the economy picks up.
The central bank embarked on a series of major rate hikes in August, bringing the Selic rate down to 9% from 12.5%, and is widely expected to continue cutting at the next meeting later this month.
In the interview, Tombini said that if rates had to be raised again in the future, he wouldn't hesitate. But rate hikes would start from a much lower level of real interest rates, he said. "Economic cycles will always exist," Tombini said.
Brazil has for many years operated at a point of equilibrium based on very high interest rates, he said. Using this opportunity to lower rates could lead the economy to a better point of equilibrium, Tombini said, adding that it must always be anchored on central bank autonomy and a functioning inflation-targeting system.
At the beginning of the year, expectations at central banks around the world, including Brazil's, were for a global economic recovery, he said.
That led the central bank to say in March that it wouldn't be lowering interest rates below the historical low of 8.75%. However, circumstances have changed, Tombini said, and there is a less optimistic view of the U.S. and European economies.
That led the central bank to withdraw the floor for future rate cuts. "But growth will come," he said, adding that economic growth should be stronger in the second half than in the first half of the year.
foxbusiness.com
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