Brazil finance minister backs Lula on rates but is focused on economy -source

Brazil finance minister backs Lula on rates but is focused on economy -source

By Marcela Ayres and Ricardo Brito

BRASILIA (Reuters) – Brazil‘s Finance Minister Fernando Haddad agrees with President Luiz Inacio Lula da Silva’s view that interest rates need to drop, but is focussed on the new governments agenda rather than taking on the central bank, an Economy Ministry source said.

Leftist Lula again raised his concerns about Brazils benchmark interest rate level, which stands at 13.75%, during a closed political meeting on Wednesday with Haddad, Luciano Bivar, a federal deputy who was present, told Reuters.

But Haddad had focused instead on the new Brazilian governments economic agenda, highlighting a new fiscal framework to be presented in April and tax reforms, Bivar said.

“The President showed discomfort over the central bank‘s actions, but Haddad preferred to focus on the government’s agenda with Congress, the creation of the fiscal framework and tax reform,” Bivar said.

Representatives for Lula and Haddad had no immediate comment on their discussions during the political meeting.

Haddad‘s stance of keeping out of the debate stirred by Lula’s attacks on the central bank does not mean he disagrees with the leftist presidents views, the Economy Ministry source told Reuters, speaking on condition of anonymity.

Lula has repeatedly criticized Brazil‘s benchmark interest rate level as a major drag on the country’s economic growth and has indicated that it should aim for higher inflation.

Haddads economic policy secretary has previously said the issue is not being discussed in the ministry.

When they kept Brazils benchmark interest at a six-year high last week, central bank policymakers signalled that interest rates could remain unchanged for longer than markets expected due to fiscal risks under Lula.

But when the minutes from the rate-setting meeting later mentioned the government‘s fiscal plans presented by Haddad as possibly mitigating risks, he went public to say that the bank’s tone was now “more friendly”.

A second official at the economy ministry said Lulas criticisms of the central bank are not a topic of internal discussion, despite concerns that they generate market uncertainty and hinder efforts to lower interest rates.

When Haddad met with senators from Lulas Workers Party (PT) on Tuesday, the interest rate debate was not discussed, two sources who asked not to be named told Reuters.

One said that the governments allies in Congress should push ahead with requests for central bank governor Roberto Campos Neto to appear before Congressional committee hearings.

But the sources added that there was no government plan to try to remove Campos Neto.

The central bank had no immediate comment.