Written by Marcella Ayers
BRASILIA (Reuters) – Brazil's Finance Minister Fernando Haddad said on Friday that high interest rates were poised to have a much stronger impact on inflation than most expected, adding that fiscal problems were challenging the effectiveness of monetary policy. He dismissed concerns that it could cause damage.
“I don't believe in fiscal superiority at the moment,” Haddad told CNN Brazil, adding that central bank interest rate hikes would push up the cost of servicing government debt, worsening fiscal conditions, deteriorating market expectations and ultimately leading to inflation. He mentioned the scenario of accelerating the Contains it.
“We believe that monetary policy has an impact on inflation,” Haddad said. “And fiscal policy needs to be more persistent.”
Amid stronger-than-expected economic growth, global uncertainty and a sharp depreciation of the Brazilian currency due to domestic fiscal concerns, the central bank plans to raise interest rates by two more 100 basis points in December and March. suggested.
As a result, the base interest rate will rise to 14.25%, the highest level in more than eight years.
Regarding currency depreciation, Haddad emphasized that Brazil operates on a floating exchange rate system, but he believes that “Considering the country's economic fundamentals, anything above 5.70 reais to the dollar is expensive.'' said.
The Brazilian real was trading around 6.05 reais to the dollar as of Friday, but had fallen to nearly 6.30 reais at the end of last year.
Haddad also said that President Luiz Inácio Lula da Silva's pledge to raise the income tax exemption threshold to 5,000 reais ($825.33) depends on the introduction of a minimum tax on all income earned by the wealthy. said.
(1 dollar = 6.0582 reais)
