Brazil's finance minister said on Thursday that reducing interest rates is the country's "big challenge," and defended the state of public finances as balanced. His remarks came after the central bank, a day earlier, lowered its benchmark interest rate by 25 basis points for a fourth consecutive meeting to 14.00%, while leaving future policy steps unspecified.
Although the easing cycle began in March, the minister noted that Brazil's real interest rates remain among the highest globally. He told GloboNews: "We will do everything within our reach to bring interest rates down."
High borrowing costs, combined with ongoing market doubts about the government's resolve to contain the growth of public spending, have pushed up the country's debt financing costs, the minister said. He highlighted that gross public debt as a share of gross domestic product has climbed by more than 10 percentage points since President Luiz Inacio Lula da Silva assumed office in January 2023.
Durigan acknowledged that improving fiscal policy is essential to reduce borrowing costs, and he said the government would stay committed to that effort if Lula wins re-election in October. At the same time, he sought to reassure markets about immediate debt sustainability, saying there was no risk of the Treasury failing to meet its debt obligations.
The minister was explicit that the government is not considering adjustments to the minimum wage indexation formula, nor is it discussing decoupling social benefits from current adjustment rules - two measures that many economists view as important steps to slow the rise in mandatory spending.
Contextual note - The central bank move to trim the benchmark rate was the fourth straight reduction and left the path forward open, underlining the balance policymakers are seeking between easing monetary conditions and anchoring market expectations given persistent concerns over fiscal trajectories.
Implications - The comments underscore the interplay between fiscal policy and interest-rate trajectories: efforts to reassure markets on spending control are presented as prerequisites for materially lowering borrowing costs and real rates.
Closing - For now, the government signals a steady stance on benefit indexation and an intent to pursue fiscal improvements aimed at easing financing pressures, while monetary policy continues to gradually unwind earlier tightening.