Brazil government sees room to cut interest rates

October 16, 2016 8:16 PM EDT

Brazil's Foreign Minister Jose Serra gestures after a meeting between Brazil's President Michel Temer and Organization of American States Secretary-General Luis Almagro in Brasilia, Brazil, October 6, 2016. REUTERS/Ueslei Marcelino


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RIO DE JANEIRO (Reuters) - Brazilian Foreign Minister Jose Serra on Sunday said slowing inflation and government efforts to rein in public spending should soon allow for an interest rate cut in Latin America's biggest country.

Serra's comments, amid expectations that Brazil's central bank could lower rates as early as this week after more than three years of tighter monetary policy, come as he and President Michel Temer sought to drum up a positive outlook at a meeting of the so-called BRICS group of developing nations in India.

"There is room, yes, for a rate cut," Serra said, speaking to reporters after the BRICS summit, which gathered the leaders of Brazil, Russia, India, China and South Africa.

Many investors, after lower inflation figures last month and an improved outlook for the economy's recovery, already believe the central bank's monetary policy committee could begin cutting the benchmark Selic rate at its upcoming meeting on Wednesday.

Inflation in Brazil fell to 8.48 percent in the 12 months through September from 8.97 percent in the previous month. Because of rapid price increases in recent years, the committee has kept the rate at 14.25 percent since July 2015.

Although Brazil remains mired in its worst economic recession on record, and economists forecast continued contraction this year and only slight growth in 2017, Temer earlier Sunday said that Brazil's economy "is getting back on the right track."

Since taking over for impeached President Dilma Rousseff, a leftist who was ousted in August over budget irregularities, Temer's center-right government has focused on efforts to rebalance government books and has proposed a constitutional amendment that would put a ceiling on public spending.

(Reporting by Camila Moreira and Paulo Prada; Editing by Mary Milliken)



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