Brazil rates at adequate levels

Brazil’s economy is picking up steam as borrowing costs fall to adequate levels and a weaker currency boosts competitiveness, Finance Minister Guido Mantega said on Thursday.

The world’s sixth-largest economy will grow by an annualized rate of 4 percent by year-end, Mantega said, after nearly stalling in the past few quarters.

One of the reasons for the ongoing recovery is the sharp drop in interest rates to “adequate levels”, which is having an “extraordinary impact on the economy”, the minister said.

Brazil’s central bank on Wednesday cut its benchmark Selic rate for a ninth straight time, to an all-time low of 7.5 percent, from 12.5 percent a year ago. The bank also signaled that it may hold rates at their current level in coming months as the economy gears up.

The rate decision followed hours after the government unveiled stimulus measures including cheaper credit for trucks and machinery and an extension of tax breaks for makers of home appliances and automobiles.

Mantega said the government will keep favoring a weaker currency to boost competitiveness. The Brazilian real has been trading above 2 units per dollar in the past two months, after a nearly 15-percent devaluation since March.

He also said private-sector banks should follow their state-owned rivals in lowering lending spreads. Private banks slowed loan disbursements in July as they continued cautious after a spike in loan delinquencies.

His speech was delivered to the country’s Economic and Social Development Council, chaired by President Dilma Rousseff and composed by government officials and business leaders.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell