AFP – Tue, Feb 18, 2014 8:54 PM AEDT
Brazil’s central bank chief said the country was proving resilient and measures to fight inflation were working, amid concern over turmoil in Latin America’s largest economy.
Central Bank of Brazil Governor Alexandre Tombini also said he agreed with measures by advanced economies, notably the United States, to reel in their easy-money policies, noting that this was a sign of strengthening.
The US Federal Reserve’s tapering of its stimulus, which has sent chills running through global financial markets, “is an indication that the largest economy in the world is gaining traction,” Tombini told reporters in a conference call.
“This is very good news for the global economy, for international trade, and for the emerging market economies.”
Tombini acknowledged the stresses that tapering and other shifts in the global economy have put on Brazil, but emphasized the country was taking “classical” economic actions to deal with it.
The central bank’s tightening of interest rates since last April, a total increase of 3.25 percentage points, has begun to tame inflation, he said.
At the same time, the bank has used its substantial foreign reserves, now $375 billion, and other buffers to ease the pressure on Brazilian businesses from the sharp fall in the value of the real over the past year, tied in part to an outflow of capital.
“We have tended to consider this situation as a temporary one,” Tombini said.
The changes which have sparked worries over Brazil, he added, “are part of the adjustment process, and should not be confused with fragility.”
“We are happy with the kind of situation we have now as far as broad financial stability is concerned…. The floating of the real has helped insulate the economy… under these new global financial conditions.”
“We are doing our homework, fighting inflation, and to a larger extent we have been successful.”
Tombini countered speculation that government data to come soon will show the Brazilian economy contracting in the fourth quarter of last year, saying he expected it to show positive growth, if very low.
Overall in 2014 the economy should grow 2.3 percent, equal to or slightly higher than the final number expected for 2013, he added.
The huge investments in infrastructure for the football World Cup this year, and the Summer Olympics in 2016, are helping the economy, and the World Cup could deliver a boost to domestic consumption in June.
“We have had some initial conditions which make Brazil quite resilient to go through this transition period,” he said.