SAO PAULO (Reuters) – The Brazilian government must cut spending “to the bone” and there is an urgency to announce a much anticipated fiscal package, outgoing central bank chief Roberto Campos Neto told a local newspaper.
In an interview published on Thursday by Folha da Sao Paulo, Campos Neto said that the country needs a “positive fiscal shock” that leaves markets with “a perception that the government is making a spending cut that is relevant not only in the short term, but also structurally going forward.”
Brazil’s Finance Minister Fernando Haddad said on Wednesday that he is uncertain whether there is enough time to announce a package to contain spending this week.
Local fiscal concerns combined with inflationary fears tied to U.S. President-elect Donald Trump’s proposals have led to currency weakening and an increase in long-term interest rates in Brazil.
When asked if the central bank might accelerate its monetary tightening pace even more if the new fiscal measures turn out to be less strict than expected, Campos Neto said that there has been no indication in recent communication that policymakers want to promote steeper hikes.
“We continue to say that we prefer to have an open guidance and that we will analyze it over time,” he said.
The central bank accelerated its monetary tightening with a 50-basis-point interest rate hike last week, pushing rates to 11.25%.
Campos Neto’s term as central bank head is coming to an end, and current monetary policy director Gabriel Galipolo will take over as governor in January.
(Reporting by Luana Maria Benedito; Editing by Toby Chopra)
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