SAO PAULO, Aug 12 (Reuters) - The global economy is facing a sharp slowdown, but Brazil has a “very solid” foreign exchange reserves position and is prepared to meet the challenges that lie ahead, Brazil’s central bank president, Roberto Campos Neto, said on Monday.
Commenting on the central bank’s IBC-Br economic activity index, which was released earlier on Monday and indicated that the economy shrank in the second quarter of the year, Campos Neto said the economy should improve “a little” in the second half.
After falling 0.68% in the first quarter, the IBC-Br index’s 0.13% decline in the three months to June suggests Brazil has slipped back into recession, albeit a shallow one.
Campos Neto’s characterization of the darkening global outlook, on the same day plunging markets in Argentina sent shock waves through other emerging markets, marked a notable turnaround from the central bank’s last policy meeting on July 31.
Then, on cutting interest rates to a new low 6.00%, policymakers said the outlook for the world economy and emerging markets was increasingly more “benign.”
Speaking at a Santander bank event in Sao Paulo, Campos Neto said that progress on economic and fiscal reforms could open up room for further rate cuts, but warned that the biggest risk to inflation remained to the upside if the reform process stalls.
Assuming more economic and fiscal adjustments are implemented, Brazil’s credit rating should eventually improve, he said, adding that the central bank is also looking at ways of providing liquidity assistance to the financial system so that banks can reduce their reserve requirements. (Reporting by Lais Martins in Sao Paulo Writing by Jamie McGeever Editing by Jonathan Oatis)