The cycle of high interest rates in Brazil is nearing its end, said this Monday (19) the Minister of Economy, Paulo Guedes. At a congress of the Brazilian Machinery and Equipment Industry Association (Abimaq), he stated that the decline in inflation should make rates fall in 2023, benefiting the productive sector.
“As our Central Bank has already raised interest rates since last year, this year should be completing the high process. From now on, as the economy advances and inflation recedes, even with some degree of resistance, what we are going to observe for next year is possibly lower interest rates”, declared the minister.
According to Guedes, the country’s fiscal situation is consolidated, with revenue growing even with the exemptions promoted this year. He reiterated that Brazilian monetary policy is ahead of other countries, with Brazil having raised interest rates before the rest of the world and with the possibility of starting to lower rates before other countries.
The minister reaffirmed that the current management works with an equilibrium rate that includes lower interest rates and a higher equilibrium exchange rate. For him, keeping the dollar above R$5 is more realistic in the medium term. “The exchange rate is more realistic now. With a stronger fiscal policy, the neutral interest rate is lower and the equilibrium exchange rate is higher. Every good economist knows this and recognizes this,” he said.
Guedes made the statements in the week in which the Monetary Policy Committee (Copom) meets to decide whether to maintain the Selic rate (basic interest rates in the economy) at 13.75% per year or raise it to 14%. A few weeks ago, the president of the Central Bank, Roberto Campos Neto, said that the agency is not thinking about dropping interest rates at the moment and that inflation is not yet under control.
According to the minister, the higher dollar and the exemption from the Tax on Industrialized Products (IPI) will help the industry from now on. “These two blades that cut the industry, high interest rates and an undervalued exchange rate, have already been removed. Now we are attacking the tool of mass deindustrialization that is the IPI. We cut 35% of the rates,” he said.
Guedes also declared that an eventual reform will allow Brazil to tax dividends and correct the table of the Individual Income Tax. Regarding Mercosur, the minister stated that the Common External Tariff reduction is frozen until other taxes are reduced. He added that the government is committed to protecting Brazilian industry in closing new trade agreements.