Brazil speeds up a fiscal plan to reduce borrowing costs

The Brazilian economic team intends to present a plan to strengthen fiscal credibility of the country before the next central bank decision on interest rates, in an attempt to pressure the monetary authority to reduce borrowing costs, according to two people with knowledge of the matter.

Although economists do not foresee a rate cut for the bank’s next meeting on March 22, the sooner the Administration of Luiz Inácio Lula da Silva is able to alleviate investor concerns about public spending, the easier it will be for policymakers to start cutting the benchmark Selic index, said the people, who asked to remain anonymous to discuss the government’s strategy.

Economic weakness puts Lula’s “barbecue and beer” at risk

The new plan would be based on a spending target established during the budget guidelines law for the year, along with estimates of upcoming income and debt, one of the people said. However, that means that the fiscal savings necessary to reduce the public deficit obtained from the real level of income obtained by the Government.

If that falls short of the estimates, the economic team has to devise measures to adjust the budget. Such details, the person added, are still under discussion.

revision proposal

The proposal, which will replace the current spending cap rule which limits the growth of public spending to the rate of inflation, has been concluded at the Finance Ministry, but still needs to be discussed with Lula and other members of his cabinet, Finance Minister Fernando Haddad told reporters on Monday. .

Lula and Haddad have publicly criticized the central bank for keeping interest rates at 13.75%, a level they see as an impediment to growth.

LM