Brazil’s central bank chief argues for fiscal stability to ensure interest rate cuts

During a recent Senate session, Central Bank President Roberto Campos Neto emphasized the critical importance of fiscal stability in achieving interest rate reductions.

He stressed that their main objective is to lay the groundwork for meaningful rate reductions.

Campos Neto held that adopting policies in line with fiscal objectives is a top priority.

Achieving these set benchmarks would pave the way for a sustained pattern of lowering interest rates.

Moreover, it’s crucial to devise strategies that strengthen fiscal well-being without increasing revenues.

On the subject of the Selic rate, he highlighted its significance, but more importantly, its credibility when undergoing reductions.

To illustrate this, he noted the Monetary Policy Committee (Copom)’s recent decision to cut the base interest rate by 0.5 percentage points, leading to an annual rate of 13.25%.

Campos Neto explained that a drop in anticipated interest rates ahead of Selic adjustments amplifies their credibility.

Turning to international reserves, he detailed the bank’s prevailing approach of managing them internally.

Yet, he also recognized the merits of outsourcing, viewing it as a way for the bank to familiarize itself with modern systems.

Campos Neto went on to provide a brief history, revealing that the practice of outsourcing reserve management began in 2000.

While it was recurrent, currently, it involves only a minuscule fraction of the reserves, fluctuating between 0 to 1% of the total.

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