Rising interest rates should cause a slowdown in the economy, says minister

Rising interest rates should cause a slowdown in the economy, says minister

Economy Minister Paulo Guedes acknowledged that raising interest rates to fight inflation will cause a slowdown in the economy next year. For him, the result will be the best possible result, and economic policy is following the right path.Rising interest rates should cause a slowdown in the economy, says minister

“Faria Lima and bankers are predicting lower growth. It’s natural. From the point of view of financiers, it is clear that there will be a strong slowdown, because interest rates are rising. Inflation has gone up, again we are doing the right thing. The important thing is not the forecast. The important thing is to do the right thing. The result will be the best possible. When they predicted that Brazil would fall 10 [%], I just discredited the forecast of 10. I didn’t say how much was going to fall. Then a war of facts arose. I believed in recovery in V. Didn’t say how long and it happened even faster than I expected. On the other hand, it was accompanied by the inflationary component”, he said, as he participated this Friday (3) in the Annual Meeting of the Chemical Industry.

In contrast to the effect of interest, Guedes counts on the advance of the investment rate, which has been registering an evolution and may reach 20% of the Gross Domestic Product (GDP) in 2022. For the minister, the growth of Brazil is inevitable and the country is recovering its economy in a sustainable way. According to him, the economy is going through a phase of cyclical recovery in the shape of a V, which is when it registers a decline followed by an ascent, based on income transfer, and now it moves to the stage of increased investment. “It’s an important number. We are increasing our investment rate,” he stated.

The minister added that he is not going to make projections of GDP growth for 2022 . “I’m not predicting how much growth will be next year. I’m trying again to put some skepticism into these predictions, which were a 10% drop, depression, mass unemployment. I’m just trying to inspire a return to normality in the Brazilian economy and even transcend that state, questioning these GDP and zero growth forecasts. It is true that raising interest rates to fight inflation slows down growth, but it is also true that an investment rate of 20% of GDP is a sign of good growth ahead”, he observed.

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