April 29, 2020 / 1:49 PM / a month ago

UPDATE 1-Brazil rates could fall below 3% -Economy Minister Guedes

(New throughout, adds details)

By Jamie McGeever and Marcela Ayres

BRASILIA, April 29 (Reuters) - Brazilian interest rates could fall below 3%, Economy Minister Paulo Guedes said on Wednesday, thanks to the government reaffirming its commitment to get its reform agenda back on track with public spending cuts, privatizations, state asset sales and tax reform.

Guedes also said that further aid worth 120-130 billion reais ($22-$23.6 bln) will be made available to states and municipalities to help fight the coronavirus crisis, and that a nationwide program to reduce workers’ hours and salaries has so far saved around 4.3 million jobs.

Speaking in a live online debate hosted by Mercado & Consumo, Guedes said the fiscal response to the crisis has been quick and bold, but insisted that public spending will not be the springboard for economic recovery.

He said the Brazilian real, which slumped to a record low near 5.75 reais per dollar last week, is being allowed to find its equilibrium level, and that a mix of low interest rates and strong dollar is preferable to high interest rates and a strong real.

The central bank has spent billions of dollars in currency market intervention recently to counter the real’s weakness and volatility, yet Brazil’s currency has depreciated almost 30% this year.

“Tighter fiscal policy allows for looser monetary policy,” Guedes said, adding that interest rates are “extremely low” but they may go down further. “Brazil has never seen this, interest rates below 3%,” he said.

The central bank’s benchmark Selic rate is a record low 3.75%, and economists expect it to be cut further next week.

Guedes said every percentage point reduction in interest rates saves the government around 80 billion ($15 billion) a year in interest payments.

On Brazil’s stash of international reserves of around $360 billion, Guedes said at current exchange rates that equates to almost 2 trillion reais of global assets, which can be used to reduce public debt but not for domestic spending purposes.

He repeated his view that controlling spending once the crisis is over will spur international and domestic private sector investment in Brazil, and warned that the government must not “continue digging” an already deep hole in the public finances.

Treasury Secretary Mansueto Almeida said on Tuesday that the primary budget deficit this year is on track to reach around 600 billion reais, or 8% of GDP, and the nominal deficit including interest payments to around 12-13% of GDP. ($1 = 5.50 reais) (Reporting by Jamie McGeever and Marcela Ayres; Editing by Catherine Evans and David Gregorio)

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