Brazil Central Bank Has Room to Cut Rates Further, Mantega Says

Brazil’s central bank has room to cut interest rates further because inflation is below the government’s target, Finance Minister Guido Mantega said.

“The central bank has cut rates a lot, we are at a very reasonable level,” Mantega said late yesterday in Sao Paulo. “In the next years, in the medium term, and I don’t want to interfere in the monetary policy, there’s room to cut more.”

The central bank announced the smallest interest-rate cut in five meetings last month on signs that Latin America’s largest economy is pulling out of a recession. After slashing the benchmark rate to a record low of 8.75 percent, policy makers said in the minutes of the July 21-22 meeting that the reduction would spur economic growth without sparking inflation.

Mantega said gross domestic product expanded 1.6 percent to 1.7 percent in the second quarter and may grow 4.5 percent to 5 percent next year. He said inflation will remain under control.

The national statistics agency will report second-quarter GDP data on Sept. 11.

Part of the economic recovery stems from government stimulus. The central bank injected about $100 billion into money and currency markets and the government cut taxes on cars, household appliances and other goods to encourage consumer spending.

Brazilian President Luiz Inacio Lula da Silva said last week that the central bank has room to make further cuts in its overnight lending rate.

“We have the lowest level of interest rates in our history,” Lula said at a conference Aug. 12 in Brasilia. “It’s desirable and possible to cut further.”

Inflation Outlook

Annual inflation slowed to 4.5 percent last month, the lowest rate since December 2007 and in line with policy makers’ annual target. Monthly inflation, as measured by the IPCA index, slowed for the third straight month in July.

“Inflation is under control and below the target for this year, which is very positive,” Mantega said today. “The economy is heating up now. It’s going to show gradual growth.”

The economy will expand faster than previously expected in 2010, according to a survey of economists published Aug. 17. GDP will grow 3.8 percent in 2010, after contracting an estimated 0.34 percent this year, according to the median forecast in the central bank survey of about 100 analysts. Economists in the prior weekly survey forecast a 3.6 percent expansion for 2010.

Brazil’s central bank monetary policy committee next meets on Sept. 1-2.