Monetary policy of Brazil’s Central Bank may cause fiscal problems, says Finance Minister

The measures adopted by the Central Bank of Brazil with respect to the basic interest rate may cause fiscal problems due to the drop in revenue because it is not possible to dissociate monetary policy from fiscal policy, said yesterday, Thursday, the Minister of Finance, Fernando Haddad.

The Brazilian official participated in a debate before the full Senate, an exercise in which the president of the Central Bank of Brazil, Roberto Campos Neto, was also present.

“If the economy continues to slow down for reasons linked to monetary policy, we will have fiscal problems because tax collection will be affected. I have no way of dissociating the monetary from the fiscal,” said Haddad.

The Brazilian government, headed by President Luiz Inácio Lula da Silva, maintains a tense relationship with the central institution, which since last August has kept the basic Selic interest rate at 13.75 percent per annum, a level considered very high.

Specialists consider that Brazil has the highest real interest rate in the world, discounting inflation.

The Minister of Finance stated that the Brazilian government is taking “unpopular measures” to balance the public accounts.

He mentioned that the administration of former president Jair Bolsonaro (2019-2022) promoted tax exemptions for almost 100 billion reais (about 20 billion dollars) in 2022, which was an election year.

The Brazilian official argued tax amnesties are “unacceptable practices” carried out for years.

“We are talking about almost 500 billion reais (about US$100 billion) of tax exemptions and another 100 billion reais that are not in the budget law because they are taxes that are not even considered for tax purposes due to the laxity of our legislation,” he said.

“We have to open this black box and discuss with society, item by item, where public resources are going to end up,” the Brazilian Finance Minister said.

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