Brazil central bank chief cool on extraordinary policy options

Brazil central bank chief cool on extraordinary policy options

2/2 © Reuters. Brazil’s Central Bank President Roberto Campos Neto gestures during a news conference at the Brazil Central Bank headquarters in Brasilia 2/2

By Marcela Ayres and Jamie McGeever

BRASILIA (Reuters) – Brazil has not exhausted its monetary policy options but should be skeptical of reducing interest rates close to zero or printing money to buy bonds and finance the government deficit, central bank president Roberto Campos Neto said on Thursday.

Speaking in an online event hosted by bank BTG Pactual, Campos Neto said the so-called ‘lower bound’ on interest rates is difficult to pinpoint and depends on several variables, while buying bonds before other monetary policy options are exhausted risked damaging the central bank’s credibility.

Campos Neto also expressed concern that credit is not flowing to small and medium-sized companies nearly as freely as he would like, and said further measures to boost credit to that sector of the economy will be announced soon.

“We believe monetary policy is not exhausted, that there are ways of using public debt securities to stabilize markets and achieve other goals that are not monetizing the debt,” Campos Neto said.

“Using other tools before this tool (interest rate) is exhausted would increase risk premiums,” he said.

The central bank cut its benchmark Selic rate by 75 basis points to a record low 3.0% earlier this month, and said it could repeat the move at its next meeting in June, although that would likely be the end of the easing cycle.

Brazil’s economy is expected to contract by 6% or more this year, its biggest ever annual downturn, and raising questions over what else the central bank can do to soften the blow.

Campos Neto also said that the central bank had been ready to intervene again in the currency market before the exchange rate recovered ground recently. Having hit a record low near 6 per dollar earlier in May, the real has rallied around 10% in the last two weeks.

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