Lower pension costs could drive Brazil rates to record lows: economists

Lower pension costs could drive Brazil rates to record lows: economists

Chamber Articles Category: Economic News Post Date: 03/16/17 Source: Reuters By: Luiz Gerbelli
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Interest rates in Brazil could drop to record lows as soon as next year if inflation keeps slowing and Congress passes fiscal austerity measures, providing relief for a nation struggling to emerge from recession, some economists said.

While record-low rates are not yet a majority view, an increasing number of economists have started to consider that possibility, provided President Michel Temer gets congressional approval of a pension cost cuts this year to plug a widening budget gap.

Passage is far from assured, however, since the measure would set a minimum retirement age for the first time and reduce payouts in one of the world's most generous pension systems.

Brazil’s benchmark interest rate of 12.25 percent is far above an all-time low of 7.25 percent set between October 2012 and April 2013.

A weekly central bank survey of more than 100 economists shows expectations that policymakers will accelerate the pace of cuts at their next meeting in April and drive rates down to an average 8.75 percent by the end of 2018.

Itaú Unibanco Holding SA economist Felipe Salles said he expected interest rates to fall to 8.25 percent by then, although he did not rule out a drop to as low as 7.25 percent.

With inflation expectations anchored and high unemployment because of Brazil's harshest recession ever, "the passage of the pension reform should help rates go to single digits and stay there for a long time," Salles added. Read Full Article