Neto plays down Brazil’s reform-rate cut link

Bloomberg

Brazil’s Central Bank President Roberto Campos Neto said there is “no mechanical relationship” between congressional approval of a key pension reform bill and a cut in interest rates, in an interview with the newspaper O Estado de Sao Paulo.
The comments appear to partially walk back the messaging in the central bank’s latest minutes, which suggested that the reform was a precondition for further monetary easing. With the pension bill making progress in Congress, traders have been pricing in around an 80 percent chance of a rate cut at the bank’s next meeting.
Pension reform is the government’s flagship economic policy. The overhaul of the social security system aims to save about 1 trillion reais ($261 billion) over the next decade. Analysts and investors consider the bill essential to stanch the bleeding in Brazil’s battered public accounts. In the minutes of the central bank’s meeting in June, board members cited the word “reform” fewer than 10 times.
The bank is also preparing to unleash a series of measures aimed at cheapening and widening access to credit, Campos Neto said in the newspaper interview.
One of the ideas is to increase the use of real estate as a guarantor for new loans, in an effort to reduce financing costs and stimulate the economy.
“We want to get the government out of the game,” he said.
In the interview, Campos Neto said that the institution could do more to lower spreads and increase inclusion in credit markets.
In particular, he cited problems for Brazilians in the use of home equity and reverse mortgages to free up financing, measures that he said were common in more advanced countries.
Asked about the bank’s focus on microeconomic measures, Campos Neto said that it was a very important issue. “It’s difficult to do business in Brazil,” he said. “It’s difficult for a small company to issue capital, gain access to capital markets. If the company wants to make a long term investment, it’s difficult to hedge.”
The bank’s president also told O Estado de Sao Paulo that central bank autonomy was one of its priorities, alongside cutting red tape on foreign exchange transactions, as well as stimulating greater competition in Brazil’s banking sector, via cooperative banking and fintechs.