50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

Brazil's Campos Neto says a lack of confidence in handling of public accounts impacts market prices

Published 06/28/2024, 11:06 AM
Updated 06/28/2024, 03:32 PM
© Reuters. FILE PHOTO: Brazil's central bank Governor Roberto Campos Neto, speaks at the ReutersNEXT Newsmaker event in New York City, New York, U.S., November 9, 2023. REUTERS/Brendan McDermid/File Photo
USD/BRL
-

LISBON/BRASILIA (Reuters) -Brazilian central bank chief Roberto Campos Neto said on Friday that investors' lack of confidence in the government's ability to improve public accounts impacts long-term interest rates and inflation expectations, and that market prices are important because they indicate where the problem lies.

Campos Neto made his comments amid a new round of weakening of the Brazilian real (BRBY) against the U.S. dollar and sharp rises in interest rate futures due to fiscal worries and comments by leftist President Luiz Inacio Lula da Silva.

Speaking at another event, monetary policy director Gabriel Galipolo acknowledged that the currency has depreciated rapidly, diverging from its peers.

Campos Neto, speaking at the Lisbon Legal Forum, said that fiscal adjustments made exclusively on the revenue side end up disrupting long-established tax relationships, creating legal uncertainty.

Galipolo, seen as a front-runner to succeed Campos Neto once his term ends in December, noted that the fiscal adjustment process is not always as quick or linear as desired, but pondered that is part of democracy.

Speaking to university students at an event in Brazil, he said the central bank needs to assess how much of the deterioration in the real compared with its peers represents an additional concern.

"We are always looking at how the pass through to current inflation and expectations occurs," he said.

Lula's administration has emphasized it will seek to balance public accounts by increasing revenue and eliminating undue tax advantages.

More recently, Lula started acknowledging the need for spending cuts when excesses are identified, while ruling out structural adjustments to the policy of raising pension benefits and the minimum wage.

Campos Neto also stressed the importance of anchoring inflation expectations to the government's target for consumer prices, calling them a "fundamental" variable.

These expectations in Brazil have been diverging from the 3% inflation target, a key factor cited by the central bank for its decision to halt its easing cycle last week and maintain the benchmark interest rate at 10.5%.

Campos Neto said he was not making specific considerations about Brazil but rather providing an analysis of post-pandemic economic dynamics.

© Reuters. FILE PHOTO: Brazil's central bank Governor Roberto Campos Neto, speaks at the ReutersNEXT Newsmaker event in New York City, New York, U.S., November 9, 2023. REUTERS/Brendan McDermid/File Photo

Earlier on Friday, Lula again criticized the high level of interest rates amid inflation of around 4% and directly targeted Campos Neto, urging the central bank to act on recent currency movements.

"Why is the dollar rising? Because there is speculation with derivatives aiming to appreciate the dollar and depreciate the real. And the central bank has the obligation to investigate this," Lula said in an interview with a local radio station.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.