(Adds Pereira comments and S&P analyst)
By Walter Brandimarte
RIO DE JANEIRO, Dec 15 (Reuters) - The Brazilian government needs to tighten fiscal policy to help bring down inflation and strengthen the country’s economic framework, central bank director Luiz Awazu Pereira said on Monday.
A surge in public spending under President Dilma Rousseff along with record low unemployment have kept inflation high in Brazil, hurting both business and consumer confidence in the once booming economy.
“Now we need to return to a neutral fiscal balance and create the conditions to move toward a contractionary fiscal policy stance,” Pereira said at an event in Rio de Janeiro. “We will have to make difficult, but necessary choices during a time of restricted financing.”
He repeated several times that the bank “will do whatever is necessary” to bring inflation back to the center of the official target that ranges from 2.5 percent to 6.5 percent. He said inflation should return to 4.5 percent by 2016.
However, Pereira, one of eight members of the bank’s board, warned policymakers will have to be “especially” careful when adjusting policies, given the complex outlook for the global economy.
Rousseff has promised to limit public spending after she nearly lost re-election in October as many Brazilians blamed her for the stagnation of Latin America’s largest economy.
Incoming finance minister Joaquim Levy has promised to tie any future spending with economic growth rates and stop using the alternative fiscal accounting methods that eroded the trust of investors.
The administration’s apparent shift in policies was backed by the central bank move to raise interest rates in its last two meetings after holding them steady for four months.
Speaking at the same event, Standard & Poor’s senior analyst Sebastian Briozzo said Brazil needs prudent policies and economic stability to avoid a downgrade of the outlook on its debt rating.
In March, S&P cut Brazil’s debt rating by one notch to its lowest investment grade due to the erosion of the country’s public accounts and slow economic growth. (Reporting by Walter Brandimarte; Writing by Alonso Soto Editing by W Simon)