Home Central Bank Central Bank to Cut Interest Rates Until Mid-Year, Says Former Director

Central Bank to Cut Interest Rates Until Mid-Year, Says Former Director

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The Central Bank will cut interest rates in the first half of the year, the bank’s former economic policy director Sergio Werlang told Bloomberg.

According to Werlang, a new monetary cycle with lower interest rates can be started at the next Copom on March 20. However, this would be the first under the command of the new president, Roberto Campos Neto.

According to him, it is not necessary that the reform of the Welfare advance to reduce the rate. “You can not keep the economy standing still pending the approval of the reform.”

Werlang believes that two cuts of 0.5 percentage points are possible at the moment. After this, the Central Bank could adopt a new stance, where it would expect the price effects to act again. However, if the pension reform were approved, the cuts could be higher.

According to the former director, there needs to be a stimulus to demand. According to him, because there is no possibility of tax cuts or increase public spending, monetary instruments become the outlet to encourage activity.

If the Selic rate really gets an additional cut, Brazil can grow 2% over last year, however, “it has to cut soon,” said Werlang. In addition, if the pension reform is approved, the Gross Domestic Product (GDP) can advance 3%.

In relation to pension reform, the former director states that the values of $ 800 bi in ten years is adequate that above R $ 1 tri is ideal. According to him, the coordination of the reform is correct, even if they have not sent the reform to the military with the general PPEC.
Currently, the IPCA accumulates a rise of 3.89% in twelve months ending in February, while the Selic (basic interest rate ) has dried by 6.5% for almost a year.