Brazil is well prepared for the next crisis, says Meirelles

The president of the Central Bank, Henrique Meirelles, says that Brazil is well prepared to face a new wave of international crises if the situation gets worse in Europe. However, according to Meirelles, a possible danger for Brazil would be a situation where rising financing costs make borrowing more difficult and increased risk aversion frightens investors away.

Meirelles, in comments made at the 12th Annual Seminar on Inflation Targeting in Rio de Janeiro, stressed that with regard to regional economic problems that are now cropping up in Europe he was keeping an eye on factors that could result in a drop in economic activity that might affect trade and exports.

The president of the Brazilian Fed said it was premature to make any prognosis about the extent of the crisis in Europe. “The fact is that Brazil is well prepared,” he said citing a kind of firewall that Brazilian economic policies had set up to fight crises consisting of a combination of price stability, inflation targets that work, a floating exchange rate and a high level of international reserves.

As for the recent financial market volatility, Meirelles said it was normal. He pointed out that an aid package of nearly $1 trillion was announced just five days ago. “It is a very short period of time, so it is normal that there is some volatility in the markets. Let’s wait. “

Meirelles also responded to criticism of the recent decision to increase in Brazil’s benchmark interest rate, the Selic (it rose for the first time in 19 months from a record nominal low of 8.75% to 9.50%). According to Meirelles, it was the most uncontroversial rate increase in the last seven years. “There was a consensus among opinion makers that an adjustment was needed. “Together with announced cuts in government spending, I believe we are on the right path. The important thing is to grow in a responsible way that does not create imbalances in future, as often has happened in the past,” he said, alluding to the problem of booms and busts that have plagued Brazilian history when ungainly bursts of economic activity, popularly known as “chicken flights,” are followed by sharp downturns. 

According to Meirelles, Brazil has been growing sustainably since 2003, with a small stumble last year due to the Great Recession, but he says he expects the country to continue growing in coming years.