Brazil has plenty of room to lower interest rates to bolster its economy in the face of a worrisome global slowdown, President Dilma Rousseff said on Friday, insisting that the country is on track to grow up to 5 percent next year. Rousseff, speaking at a breakfast with a select group of political reporters in the presidential palace in Brasilia, also voiced concerns that the financial crisis emanating from Europe is deepening and called the global outlook for 2012 "unfavourable."
Still, she expressed confidence that Brazil is well prepared to weather the storm, citing the country's vast domestic market, growing middle class of free-spending consumers, and strong public finances. "I can say I'm optimistic because we have our own resources to confront this moment," Rousseff, who turned 64 this week, told reporters. "The trend for the Brazilian economy is one of expansion."
Rousseff, a career technocrat who had never run for political office before last year's presidential election, has spent much of her first year in office managing an economic slowdown and trying to put the brakes on above-target inflation. Brazil's economy ground to a halt in the third quarter, official data showed last week, and a flurry of recent indicators suggest the South American giant is off to an even slower start in the fourth quarter.
Rousseff's government has sought to rekindle the economy by lowering interest rates three times since August, easing credit restrictions to boost lending, and offering tax breaks on home appliances and some key foodstuffs. Rousseff did not say if the government planned additional measures aimed at boosting consumption. But when asked about the likelihood of more interest rate cuts, she said: "We have room to manoeuvre in monetary policy," a luxury she said Europe and the United States don't have because rates there already are near record lows.
Brazil's benchmark lending rate currently stands at 11.0 percent after falling 150 basis points since August, when Central Bank President Alexandre Tombini surprised markets with an easing cycle that now looks prescient. The bank has signalled that more "moderate" rate cuts are likely.
The growing global economic headwinds have prompted some economists to reduce their 2012 growth forecasts for Brazil to as low 3 percent. But Rousseff struck a more upbeat tone, insisting that Latin America's largest economy would surprise on the upside. "My scenario is between 4.5 and 5 percent growth," she said.
Asked about inflation, a bogeyman that has haunted the Brazilian economy for decades, Rousseff said consumer price increases would continue their recent easing trend. "We are certain that it will remain under control," Rousseff said, adding that the annual inflation rate will gradually move back below the target ceiling of 6.5 percent.