Brazil central bank chief sees start of 'V-shaped' recovery, limited room for rate cuts

FILE PHOTO: Brazil's Central Bank President Roberto Campos Neto attends a news conference, amid the coronavirus disease (COVID-19) outbreak, in Brasilia, Brazil April 7, 2020. REUTERS/Adriano Machado

BRASILIA (Reuters) - Brazil’s economy looks to have begun a “V”-shaped recovery from the worst of the COVID-19 crisis, central bank president Roberto Campos Neto said on Thursday, citing the latest energy, traffic and tax collection data as well as double-digit credit growth.

Speaking in a live online event hosted by newspaper Correio Braziliense and Itau bank, however, Campos Neto also cautioned that economic rebounds in other countries that have started in similar fashion have recently shown signs of fading.

The latest official figures paint a mixed picture. International trade looks like it will no longer be a drag on economic growth and the manufacturing sector is growing again, but by many measures the labor market is under the most severe pressure on record.

“Some of the real-time data ... is starting to show a faster rebound in June,” Campos Neto said. “So it seems that we have started a recovery that would be ‘V’-shaped initially, but that should smooth out a little,” he said.

Brazil’s economy is expected to shrink by more than 6% this year, according to consensus forecasts, which would be a record annual decline. The central bank’s forecast is for a 6.4% fall, and the government will revise its -4.7% forecast on July 10.

The central bank reduced its benchmark Selic rate to 2.25% last month, bringing real rates accounting for inflation close to zero, and at the time said that further easing could destabilize financial markets.

Campos Neto repeated this warning on Thursday, noting that there is room to lower the Selic rate further but not much more. Continued easing at this point could trigger “unwanted” effects.

Campos Neto also said that inflation, currently running significantly below the central bank’s target, will remain well-behaved this year and next, but warned that unemployment will get worse before it gets better.

Reporting by Marcela Ayres and Jamie McGeever; Editing by Leslie Adler and Jonathan Oatis