UPDATE 1-Brazil's Tombini says downgrade reinforced need for adjustments
(Adds Tombini comments on currency, taxes)
BRASILIA, Sept 15 (Reuters) - A recent credit downgrade has made Brazil's situation more challenging, reinforcing the importance of policies aimed at lowering inflation and shoring up public finances, central bank president Alexandre Tombini said on Tuesday.
In a Senate hearing, Tombini reiterated that inflation should slow to the 4.5 percent target by the end of 2016 if interest rates remain steady for a long period, although recent risks require the central bank to remain vigilant.
"This moment should be used to rethink tax structures and public spending," Tombini told senators. Brazil's government on Monday unveiled new taxes and spending cuts totaling $17 billion as part of efforts to close a budget deficit.
Tombini said the recent drop in Brazil's currency to near-record lows has not brought about a significant increase in financial risks and should actually help manufacturers.
Brazil's benchmark interest rate of 14.25 percent is the highest among the world's 10 largest economies. Inflation is near 10 percent but is set to fall sharply next year due to a steep recession, the worst for Latin America's largest economy in 25 years.
As inflation cools and the economy stabilizes, people will become more confident, Tombini said. (Reporting by Marcela Ayres; Writing by Silvio Cascione; Editing by Chizu Nomiyama and James Dalgleish)
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