UPDATE 1-Brazil officials go on fiscal discipline offensive as markets wobble

(Adds detail, context, quotes)

By Jamie McGeever and Gabriel Ponte

BRASILIA, June 18 (Reuters) – Brazilian economy ministry and central bank officials on Thursday stressed the need for the government to stick to its fiscal rules and keep a tight control on public spending as soon as the COVID-19 crisis passes.

The warnings from three senior figures came on a day of volatility and big moves in currency and interest rate markets, against a backdrop of rising domestic political tension and a new low for official borrowing costs.

Economic Policy Secretary Adolfo Sachsida, the central bank’s monetary policy director Bruno Serra and Treasury Secretary Mansueto Almeida all said maintaining the government’s spending cap was crucial to Brazil’s economic future.

“If the government is unable to resist this pressure (to relax the rule), we run the risk of interest rates rising, and country risk and uncertainty increasing,” Almeida said in an online event hosted by Infomoney.

Earlier, Serra said in another online event that the spending cap, which limits the growth in public spending and investment to the previous year’s rate of inflation, is “crucial” to sound fiscal and monetary policy,

Almeida noted that government debt will surge this year to around 95% of gross domestic product, and that Brazil has a two-year window to show markets it is committed to a course of fiscal rectitude.

Speaking in the same event as Serra, Sachsida said Brazil must get debt-to-GDP on a downward and sustainable path.

The real fell 2% and the interest rate curve steepened on Thursday, a day of political drama as the education minister quit and a former aide to one of President Jair Bolsonaro’s sons was arrested.

Traders said these events, coming after the central bank cut interest rates to a new low of 2.25%, raised doubts about the government’s ability to push through the reforms deemed so critical to Brazil’s economic well-being. (Reporting by Jamie McGeever and Gabriel Ponte Editing by Chris Reese)

Source: Read Full Article