Brazilian Government Urged to Cut Spending

SAO PAULO (Reuters) – The Brazilian government must cut spending "to the bone" and urgently announce a long-awaited fiscal package, according to outgoing central bank chief Roberto Campos Neto in a local newspaper interview.

In an interview published on Thursday by Folha da Sao Paulo, Campos Neto emphasized the necessity for a "positive fiscal shock" that would convince markets of the government's commitment to meaningful spending cuts, impacting both the short and long term.

Brazil's Finance Minister Fernando Haddad expressed uncertainty about the timeline for releasing a package to reduce spending this week.

Concerns over local fiscal issues and inflationary pressures from U.S. President-elect Donald Trump's proposals have weakened Brazil's currency and raised long-term interest rates.

When asked if the central bank would tighten its monetary policy further if new fiscal measures are not sufficiently stringent, Campos Neto noted that recent communications haven't indicated an inclination for sharper rate hikes.

He added, "We prefer to have open guidance and will assess the situation over time."

The central bank implemented a 50-basis-point interest rate increase last week, raising rates to 11.25%.

As Campos Neto's term as chief of the central bank concludes, monetary policy director Gabriel Galipolo will assume the role of governor in January.