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Rousseff: Low Brazil Rates To Head Off Inflow ‘Tsunami’ -Report
SAO PAULO (Dow Jones)-Brazil President Dilma Rousseff said a reduction in interest rates is needed not only to spur growth, but to balance local rates with global ones to avert a “tsunami” of foreign speculative investment, according to an interview published over the weekend.
“The reduction of interest rates by the Central Bank isn’t just to heat up the Brazilian economy,” she said in an interview with journalist Luis Nassif published on his website on Sunday. “I compliment the central bank because the broader intention is to align the internal rate with the international [rate].”
Rousseff criticized the low rates and easy money in developed economies, part of the so-called quantitative easing process, because of the speculative bubbles they have created. Instead of going toward productive investment, the billions of dollars being injected into markets are seeking high growth and high interest rates, which Brazil has, Rousseff said.
Brazil’s central bank last week cut rates for a fifth consecutive time, picking up the pace of reductions by slashing the benchmark Selic 75 basis points to 9.75%. The bank, which had been cutting rates by half a percentage point every time, is expected by many to cut rates by 75 points again next month.
The policy also artificially weakens currencies in more developed regions such as the U.S. and Europe, helping exports from those regions at the cost of “impoverish(ing) thy neighbor” in the developing world, she said.
“There’s a huge bubble on the way,” Rousseff warned, reiterating comments made earlier this month when she met with German Chancellor Angela Merkel.
That reality of massive inflows and weaker global currencies is the main challenge for Rousseff’s government, she acknowledged in the interview.
“I can’t reveal the measures we may take, but for the government that is the principal question,” she said. “If you ask what the main concern of the government is, it’s to see how Brazil will defend itself from these policies, that are clearly protectionist, carried out by governments of developed economies.”
She cited as an example the recent attempt to renegotiate an auto trade accord with Mexico. The agreement, which exempts from taxes the auto trade between Mexico and Mercosur — the trade block that includes Argentina, Brazil, Paraguay and Uruguay, was criticized by Rousseff after Brazil’s auto trade deficit with Mexico widened in recent years.
The accord “was made in 2002, at a different juncture in time, during which the accord made sense. And it’s in effect up to now, in conditions that are inadequate for Brazil,” she said.
Brazil has asked Mexico to limit the value of annual exports to Brazil at $1.4 billion, which Mexico has reportedly rejected.
Rousseff added that the government will take measures to ensure that Brazil’s strong domestic demand — which has been driving the country’s economic expansion even as the global economy slumps — isn’t “cannibalized.” Though Rousseff recognized that the country’s industry has suffered from high interest rates, a weak global economy and a flood of imports thanks to Brazil’s strong currency, she said that it isn’t too late for a turnaround.
“There’s a slowdown in industry, but we can reverse that,” she said. “We couldn’t if we had let this continue for two or three years. But now we can, and we will do the possible and impossible to defend domestic industry.”
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