August 6, 2019 / 12:15 PM / a year ago

UPDATE 2-Brazil central bank sees little second-quarter growth, flags global risks

(New throughout, adds comments from central bank head Campos Neto)

By Marcela Ayres

BRASILIA, Aug 6 (Reuters) - Brazil’s central bank sees gross domestic product staying stable or growing only slightly in the second quarter, minutes from the last monetary policy meeting showed on Tuesday, while the bank’s head flagged downside risks from global macroeconomic tensions.

Economic growth should accelerate in the following quarters, according to the minutes, helped in part by the freeing up of funds from a workers’ pension fund, known in Brazil as FGTS.

“Expected acceleration notwithstanding, the base case supposes that underlying economic growth, excluding temporary effects, will be gradual,” the bank wrote.

On July 31, the bank’s nine-member monetary policy committee, known as Copom, cut the benchmark interest rate 50 basis points to 6.0% in a unanimous decision, as the bank seeks to breathe life into a sluggish economy and keep inflation from falling too far below target.

The minutes reaffirmed Copom’s view that there is more room for monetary adjustment, which it previously expressed when it decided to cut the benchmark rate.

According to the minutes, released before a global market rout on Monday fueled by a falling Chinese yuan currency, Copom sees the overall balance of risks evolving favorably. However, the committee said “geopolitical risks” could end up hurting global growth.

In comments in Brasilia later on Tuesday, central bank head Roberto Campos Neto said the global economy is passing through a turbulent moment, while also reaffirming that the bank believes it is necessary to examine such matters from a long-term perspective.

He also emphasized the importance of a number of macroeconomic and microeconomic reforms that are working their way through Brazil’s Congress or being drawn up by authorities, such as far-reaching overhauls of Brazil’s social security and tax systems.

The bank is drawing up rules to simplify currency hedges and has a legislative proposal “basically ready,” he said. He added that “information asymmetries” are holding back Brazil’s credit market, including in the real estate sector, which he described as lightly leveraged. (Reporting by Marcela Ayres Writing by Gram Slattery Editing by Nick Zieminski, Bill Trott and David Gregorio)

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