Brazil’s lawmakers can’t duck their responsibility to pass belt-tightening measures, central bank President Ilan Goldfajn told a Senate hearing in Brasilia this week. Reform proposals, particularly a constitutional amendment to limit pension spending, will help keep inflation low, reduce the structural interest rate and buoy the country’s overall recovery, Goldfajn said.
Brazil’s central bank has cut 600 basis points from borrowing costs in the past year as inflation slowed and President Michel Temer’s administration made headway reining in public spending. Still, measures capable of holding down prices in the medium-term have since stalled in Congress amid a political scandal. When confronted by Senators in the hearing who said it’s unfeasible to approve a pension overhaul so close to the 2018 elections, Goldfajn said policy makers must act to control obligatory spending.
I believe you can’t escape from carrying out reforms at some point, Goldfajn said. The earlier it’s done, the better.
The lower house of Congress is set to start debate on a second set of criminal charges against Temer which may further delay debate on his policy proposals. Frustrating expectations over the passage of necessary economic measures represents a risk to monetary policy, Goldfajn said, adding that the risk would be amplified in the case of a less benign global environment.
Still, there are signs of recovery in an economy scarred by back-to-back years of recession, Goldfajn said. Consumer demand has been buoyed by slower inflation, and recent energy and oil bloc auctions were successful. Stoking investments must be the next step for the country’s growth, he said.