| SAO PAULO
SAO PAULO Dec 21 Brazil's President Michel
Temer is increasingly likely to depend on lower interest rates
and an unpopular agenda of legislative reforms to revive a
moribund economy, analysts said, as a deep recession risks
entering a third year.
Temer's best chances to spark growth lie in quickly pushing
through Congress an unpopular pension reform unveiled this
month. If his program wins approval, that would help the central
bank cut interest rates at a faster pace, according to analysts.
However, there is growing skepticism about Temer's ability
to give a significant boost to the economy and his popularity by
the end of his mandate in 2018. Add to that the anxiety that
Brazil's political turbulence, stoked by a sweeping political
corruption probe, will not abate.
The current Brazilian president has lost four ministers due
to corruption allegations. That along with the prolonged
economic recession have threatened his political survival and
given rise to calls for him to step down and allow new
"The economic and political crises have been feeding each
other. The government has not been able to break that cycle,"
said Carlos Melo, a political scientist at the Insper institute.
Analysts see a narrowing window of opportunity for Temer.
The campaign for the 2018 presidential election is likely to
interfere with political strategies in Congress in the second
half of next year, analysts said, leaving little time for any
rate cuts to have an effect over the economy, given its usual
Each 0.25 percentage point cut in the benchmark interest
rate, currently at 13.75 percent, contributes to economic growth
by 0.1 percentage point, according to Alessandra Ribeiro, an
economist with Tendências Consultoria.
And political risk may offset that effect, she said, by
raising lending spreads by banks.
For nine straight weeks, economists in a central bank poll
have cut their forecasts for economic growth next year to 0.58
percent. Brazil's gross domestic product is expected to shrink
by more than 3 percent for a second year in 2016.
The Finance Ministry and the central bank have recently
announced a series of measures to reduce credit costs and cut
bureaucracy. But the government has shied away from offering
subsidies or raising spending as it struggles with a record
"The government's honeymoon with markets and analysts is
practically over," said Monica de Bolle, a senior fellow at the
Peterson Institute for International Economics. "2017 will be a
complicated year and it is hard to imagine the economy moving
out of where it is now."
(Writing by Silvio Cascione; Editing by Jeffrey Benkoe)