Brazil's Government to Address Fiscal Concerns

By Marcela Ayres
WASHINGTON (Reuters) – Brazil's government will soon announce measures to alleviate financial markets' fiscal worries affecting the country's risk premium, stated central bank chief Roberto Campos Neto on Thursday.

At a G20 press conference during the IMF and World Bank annual meetings in Washington, Campos Neto remarked that "Brazil is performing much better than the average" regarding primary budget balances among countries. He suggested that current market prices might be exaggerated.

His comments regarding President Luiz Inacio Lula da Silva's government follow recent statements where Campos Neto indicated that a fiscal shock is necessary to lower future borrowing costs. Additionally, he noted that the upcoming Nov. 5 U.S. presidential election is increasing market volatility, influenced by inflationary proposals from candidates Kamala Harris and Donald Trump.

As election day approaches, the market is closely analyzing the candidates' positions, impacting prices. Brazil's next monetary policy meeting is set for Nov. 6, with forecasts indicating a 50 basis-point rate hike, following a 25-basis-point increase in September that raised the central bank's rate to 10.75%.

Finance Minister Fernando Haddad announced that the government intends to strengthen the fiscal framework's parameters but refrained from disclosing specific details. Markets have raised concerns about the sustainability of fiscal rules established by Lula last year, as rising mandatory expenses are limiting the budget for other expenditures under a spending cap, potentially jeopardizing the framework's viability in the coming years.

Despite Lula's resistance to spending cuts, his economic team plans to present measures for expenditure control after the municipal election later this month.