Brazil Has Further Room For Interest Rate Cuts -Itau's Setubal
IIF chief economist Philip Suttle said that "Brazil is one of the economies where monetary policy seems to work."
IIF considers Brazil has a "sound Central Bank and fiscal policies," which will allow it "to significantly outpace growth rates in developed countries," Setubal added.
However, the executives didn't foresee any dramatic fall in the South American country's interest rates.
Brazil Has Further Room For Interest Rate Cuts -Itau's Setubal
--Head of Brazil's second-largest bank says more room for rate cuts
--Itau's Setubal says inflation is under control, growth is accelerating
--IIF says monetary policy works in Brazil
(Updates with emerging-nation currencies seen remaining strong in seventh paragraph, possible contagion from Europe in equity investments in ninth paragraph, comment in final paragraph.)
By Diana Kinch Of DOW JONES NEWSWIRES RIO DE JANEIRO (Dow Jones)--Brazil has "more space" for further interest rate cuts following Wednesday's 0.75-percentage-point cut in the base rate, said Roberto Setubal, chief executive of Itau Unibanco, Brazil's second-largest bank.
"Brazil is going really well. Brazil has inflation under control and is reaccelerating its economy," Setubal said, speaking at the publication of a new report on the Latin American economy produced by the Institute of International Finance. Setubal is also vice chairman of the IIF.
Late Wednesday, the Central Bank of Brazil surprised many with a more aggressive interest rate cut than had been expected. The bank lowered the Selic rate by 0.75 percentage point to 9.75% per year.
IIF chief economist Philip Suttle said that "Brazil is one of the economies where monetary policy seems to work."
IIF considers Brazil has a "sound Central Bank and fiscal policies," which will allow it "to significantly outpace growth rates in developed countries," Setubal added.
However, the executives didn't foresee any dramatic fall in the South American country's interest rates.
Brazil's interest rates could still remain "not far from 10% in coming years, inevitably setting up pressure for long term capital flows -- it's not an easy job to manage these flows," Suttle said. As a consequence of the high inflows, "we expect the currencies of emerging countries to remain strong," he said.
Capital inflows into Latin America surged 25% in 2011, "reflecting the commitment of investors worldwide to Latin America," said IIF senior economist for Latin America Ramon Aracena. However, this also means the region can be susceptible to turbulence, originating, for instance, in Europe, according to IIF's regional report.
Europe accounts for one-third of total foreign holdings of Latin American regional portfolio equity, meaning that "the equity market has been a major contagion channel for financial turbulence", the report says.
IIF foresees that Brazil's economy will grow 3.5% in 2012 and above 5% in 2013, Aracena said. This compares with Latin American regional growth of expectations of a slowing to 3.7% this year -- from 4% last year -- before strengthening to 4.5% in 2013, according to IIF.
"Latin America is a source of support for the global economy, rather than a source of risk as it was a few years ago," Aracena said. The region now has a strong banking system, a relatively strong fiscal position, flexible exchange rate regimes and high foreign reserves, he said.
The IIF highlighted there are risks to Latin America as a result of the region's rising dependence on the Chinese market, where growth could slow. However, the IIF foresees that China's economic growth should reach at least 8.5% and maybe 9%, and certainly higher than the government's recent forecast of 7.5%, Suttle said.
IIF managing director Charles Dallara said he considers that Brazil has the potential to compete on the global stage with China "but it's important for Brazil to sustain an agenda of reform in fiscal, labor and other areas.
"Brazil has made extraordinary strides in competitiveness but this needs to be complemented by structural reforms," the IIF executive said.
-By Diana Kinch, Dow Jones Newswires, 55 21 7564 4495; diana.kinch@dowjones.com
(Matthew Cowley in Sao Paulo contributed to this article.) |
