By Marcela Ayres
BRASILIA, Feb 6 (Reuters) – Brazil’s economic policy chief Guilherme Mello said on Friday that stabilizing the country’s gross debt-to-gross domestic product ratio depends on monetary policy decisions, offering a glimpse of what he could support as a potential central banker.
Mello made the remarks after Finance Minister Fernando Haddad revealed this week that he had recommended Mello to President Luiz Inacio Lula da Silva for a vacancy on the central bank’s interest rate-setting board.
Reuters reported, citing sources, that Lula was leaning toward nominating Mello, a prospect that stirred unease among many investors who fear he could favor a more unorthodox and politically-driven monetary policy.
Mello helped draft the government’s program and has previously argued for lower interest rates. He holds a PhD in economics from the State University of Campinas, widely viewed as a hub of unorthodox economic thought in Brazil.
Mello said at a press conference he was honored by Haddad’s endorsement, but declined to comment further as Lula had not officially offered him the job. That choice would require Senate approval.
“I am at the president’s and the minister’s disposal to carry out whatever tasks they deem appropriate,” Mello said, adding that his track record at the economic policy secretariat demonstrates his abilities.
NO COMMENT ON NEXT CENTRAL BANK DECISION
Asked about the size of a potential rate cut at the central bank’s meeting next month, Mello declined to comment but said the government sees room for easing.
Central bank policymakers have signaled they will start lowering the key Selic rate after a long period holding it at a nearly 20-year high of 15% to tame inflation.
“The magnitude of the rate cut is a decision for the (rate-setting board) Copom,” Mello said.
He added that the outlook for stabilizing gross debt was “clearly challenging,” but argued recent results suggest the government is on the right track.
“Debt is clearly not a purely fiscal indicator. It depends on monetary policy decisions and a range of other factors, so its projections can change significantly as the interest rate curve shifts,” he said.
Brazil’s Treasury estimates gross debt as a share of GDP, a key indicator of fiscal sustainability, will rise by nearly 12 percentage points over Lula’s current term, which ends this year.
Mello said the government has tools to stabilize debt growth under the fiscal framework approved in 2023, which caps real spending growth and sets primary balance targets.
(Reporting by Marcela Ayres; Editing by Gabriel Araujo and Paul Simao)
