BRASILIA (Reuters) - Escalating trade tensions between the United States and China are unlikely to hurt global economic growth, Brazilian central bank chief Ilan Goldfajn told Reuters on Tuesday, playing down recent turmoil in Latin American markets.
Emerging markets sold off on Monday after China announced retaliatory tariffs against U.S. President Donald Trump’s protectionist efforts. Goldfajn said he expects global trade tensions to generate short-term uncertainty, but they should eventually be resolved through new trade deals.
“If at the end of the day we reach new deals, global trade is maintained, this would not affect” global growth, Goldfajn said. “Of course, if there’s a larger dispute, it would affect (growth).”
An uncertain global outlook is one of several factors the bank is weighing as it decides when to end a cycle of interest rate cuts that brought Brazil’s benchmark interest rate to an all-time low of 6.50 percent.
The bank caught many by surprise last month by signalling it would likely cut the benchmark Selic rate by an additional 25 basis points at its May meeting, just a month and a half after hinting at the end of easing.
High unemployment rates and widespread idle capacity have kept inflation below the official target range and brought down inflation expectations in the years ahead.
Goldfajn has repeatedly said that the bank could “pause” rate cuts in mid-2018 as it assesses the risks going forward.
Asked about whether the bank could cut interest rates after that pause ends, Goldfajn was noncommittal.
“This is not something that we have communicated” he said. “I don’t think this is the time to issue signals.”
“Look, if you think about it, I’m saying that there are two main risks. We will assess both of these risks to the baseline scenario.”
Asked about efforts by Brazilian banks to eventually use blockchain technology to register certain transactions, Goldfajn said efforts to improve the payments system through innovation are positive and he saw no need for central bank regulation.
“If over time it becomes necessary, we will regulate, but we don’t want to be heavy-handed while dealing with innovation - we want it to flourish, to bear fruit,” Goldfajn said.
His remarks underscored the bank’s combination of market-based mechanisms and more hard-edged regulations as it tackles longstanding challenges in Brazil such as costly credit and wide banking spreads, which have declined slowly despite loose monetary policy.
Last month, for example, the bank introduced a cap on fees paid by businesses to debit card issuers in a move to enhance consumer protections at the expense of an increasingly concentrated banking sector.
On the other hand, Goldfajn said he is counting on “self-regulation” to reduce bank overdraft fees and is counting on the private sector to introduce credit card-related products that take less time to pay businesses.
“Our idea is to neither force nor forbid — nothing of the sort — but rather for the market to offer what already exists today, but with less distortions,” he said.
Reporting by Bruno Federowski and Marcela Ayres; Additional reporting by Brad Haynes and Patricia Duarte in Brasilia; Aluisio Alves in Sao Paulo; Editing by Matthew Lewis