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Brazil’s Haddad says high interest rate is country’s main issue

By:
Reuters

BRASILIA (Reuters) - Brazil's Finance Minister Fernando Haddad said on Wednesday that the country's high interest rate is the primary obstacle to economic growth, adding that recent government measures such as reinstating fuel taxes would pave the way to monetary easing.

Brazil’s Haddad says high interest rate is country’s main issue

BRASILIA (Reuters) – Brazil’s Finance Minister Fernando Haddad said on Wednesday that the country’s high interest rate is the primary obstacle to economic growth, adding that recent government measures such as reinstating fuel taxes would pave the way to monetary easing.

In an interview with news portal UOL, he said he believed this was the correct path to follow, rather than changing the central bank’s inflation targets.

Brazil’s benchmark interest rate is currently at a six-year high of 13.75%, which Haddad said was causing a “credit problem” although he did not give further details.

The fuel tax resumption signals a commitment to the sustainability of public accounts, thereby assisting policymakers to cut rates, Haddad said, stressing that ultimately the decision still rests with the central bank.

Leftist President Luiz Inacio Lula da Silva has also repeatedly and publicly criticized the level of interest rates given slowing inflation, saying the current inflation targets are too low and detrimental to economic growth.

But Haddad said that changing the targets was not the answer.

“We will recover the public budget from the perspective of revenue and expenditure to quickly create space for reducing interest rates,” he said. “The inflation target will not be what causes the interest rate to fall.”

Haddad also said the country’s new fiscal framework could be presented before the central bank’s next policy decision on March 22.

The new fiscal rules are eagerly awaited after Lula secured Congress approval for a multi-billion spending package that bypasses the constitutional cap to meet campaign promises.

(Reporting by Marcela Ayres; Editing by Steven Grattan, Kirsten Donovan)

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