(Adds comments by economists, country background)
By Alonso Soto
BRASILIA Oct 4 Brazilian central bank chief
Ilan Goldfajn said on Tuesday policymakers have no set time
frame to cut interest rates, even as industrial data suggested
that Latin America's biggest economy may take longer than
expected to emerge from recession.
Goldfajn told lawmakers at a congressional hearing that in
order to cut benchmark interest rates from their current level
of 14.25 percent, policymakers need to feel confident that
inflation will continue to drop and hit the official target.
"The central bank does not have a pre-established time frame
to ease monetary policy," said Goldfajn, who took the helm of
the monetary institution in June under a new center-right
For months, Brazil's central bank has been under pressure to
slash interest rates - which are among the highest in the world
- in order to breathe life into the $2 trillion economy which is
now in its second year of recession.
Following an easing in inflation in recent months, markets
are pricing in a gradual reduction of 300 basis points in
interest rates over the next year, starting from next month.
"I don't think he was backtracking from recent comments, but
cautioning markets that may be exaggerating in their expectation
for a drop in rates," said Newton Rosa, chief economist with
SulAmerica Investimentos. Rosa expects the central bank to start
easing rates in October with a 25 basis-point cut.
Lower interest rates could help spur the economy by making
corporate and consumer borrowing easier.
A bigger-than-expected drop in industrial output on Tuesday,
which erased five straight months of gains, quashed hopes for a
more rapid recovery in the once-booming economy.
Since 2015, Brazil's economy has underperformed emerging
market peers and neighbors, and a rebound is expected to be
timid. The International Monetary Fund (IMF) on Tuesday kept its
forecast for mild recovery in the South American nation next
The IMF estimated Brazil's economy would expand by 0.5
percent in 2017 after contracting 3.3 percent this year.
The central bank has kept its benchmark Selic rate
at a 10-year high of 14.25 percent for a year to
battle inflation, which remains near 9 percent. The central bank
is targeting inflation of 4.5 percent.
Goldfajn, a Massachusetts Institute of Technology-trained
economist with experience in private banks, urged lawmakers to
approve key austerity reforms to pave the way for lower interest
rates and speed up a recovery.
The lower house of Congress on Tuesday started to analyze
the draft amendment that limits public spending to the rate of
inflation. The draft, which maintains the government's original
proposal largely intact, is expected be voted on Thursday.
"The draft was very positive because it kept more than 90
percent of what the government was proposing," said Carlos
Kawall, chief economist with Banco Safra and former head of the
national treasury. "The amendment vote in the lower house could
influence the (central) bank's rate decision in October."
(Editing by Will Dunham and Matthew Lewis)