BRASILIA (Reuters) – Brazil’s central bank Governor Roberto Campos Neto said on Thursday that improving public revenue would anchor inflation expectations in line with official targets, paving the way for further interest rate cuts.
The administration of Brazilian President Luiz Inacio Lula da Silva has promised measures to increase revenue and says they are vital to support new fiscal rules aimed at ensuring fiscal sustainability.
Speaking at a Senate hearing, Campos Neto said that when the revenue measures are approved and fiscal targets are met, “we will have fiscal and monetary convergence.”
He said markets had not fully priced in the central bank’s projection of forthcoming low inflation and the government’s anticipation of an improvement in budget figures.
“If we manage to anchor this fiscal expectation, I can also anchor the monetary expectation and that will make interest rates lower up front, we will be able to lower interest rates more as this happens.”
Campos Neto also said the central bank had done a good job in terms of a soft landing, bringing inflation down at the least possible cost, even though Lula had criticized the bank for keeping rates at a six-year peak for nearly a year and not cutting them until at its meeting earlier this month.
Campos Neto highlighted that Brazilian inflation fell by a substantial 8.7 percentage points between 2023 and 2022, and the GDP outlook was raised.
In contrast, inflation fell by considerably less on average in other Latin American emerging economies, coupled with a deterioration in economic prospects, he said.
Campos Neto also said the central bank remained concerned that service inflation has not fallen like other inflation readings.
(Reporting by Marcela Ayres; Editing by Mark Porter and Susan Fenton)