Brazil Rate-Cut Plan Draws Currency Warning
A Brazilian economist warns that halving the 13.75% Selic rate could trigger a run on the real and strain reserves of US$367.9 billion. The post Brazil Rate-Cut Plan Draws Currency Warning appeared first on The Rio Times .
Brazilian economist Paulo Gala has warned that halving the benchmark interest rate could trigger a currency crisis. In a video, Gala argues against cutting the Selic rate by half, from 13.75% to about 7%, despite agreeing with the goal. He points out that Brazil pays around R$1 trillion annually in interest on its public debt, which is nearly 10% of the economy.
Gala suggests that instead of rate cuts, Brazil should pursue fiscal moderation and strategic intelligence to manage the debt situation. The central bank reported foreign-currency reserves of US$367.9 billion on 5 November, which Gala argues might not be enough to prevent a rapid devaluation of the real if investors lose confidence.
Current prediction markets suggest an 88.5% chance of no change in the Selic rate at the December meeting, with only a 5.7% likelihood of a quarter-point cut.
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