Brazil's tighter controls on government spending are here to stay and will help the central bank further cut its lofty benchmark interest from 9.75 percent, Planning Minister Miriam Belchior said on Saturday.
A bloated state in Latin America's largest country has for years been blamed by private-sector economists for making it more difficult for the central bank to keep prices stable.
But the government says that is changing. President Dilma Rousseff cut 55 billion reais ($32 billion) in spending this year, mainly on administrative and discretionary costs, while preserving outlays for public investments needed to expand the economy's capacity and eliminate infrastructure bottlenecks. That followed a 50 billion reais reduction last year.
"The fiscal efforts will continue, as our president says," Belchior told Reuters. "We will do our part with the necessary fiscal efforts to generate conditions for the central bank to continue with the line it has been adopting in recent months."
In a bid to stoke economic growth that slumped to 2.7 percent last year, the central bank slashed its Selic rate by 75 basis points to 9.75 percent last week and signaled looser monetary policy is on the way.
But the Selic is still among the world's highest benchmark interest rates. It has been blamed for contributing to an overvaluation of the local currency, the real, and undermining the competitiveness of Brazilian exports. The lowest point it ever reached was 8.75 percent, when Brazil slashed rates in 2009 during the global financial crisis.
Most economists expect Brazil's economy to grow about 3.3 percent this year - a slow pace for one of the members of the fast-growing club of BRIC countries. Belchior said she was more optimistic and that a 14 percent rise in the minimum wage will help lift the economy by expanding domestic consumption.
"We are working to grow between 4.5 and 5 percent," she said. "The government's main goal, as decided by the president, is for investments to drive our economy this year."
Belchior, who was in Montevideo for a meeting of the Inter-American Development Bank, said fiscal and monetary policy are now in sync and working in the same direction - a major change from the previous government of President Luiz Inacio Lula da Silva.
"Right now it's possible to have this new mix between fiscal and monetary policy. This allows for the reduction in interest rates, which is an important goal of the Brazilian government," Belchior said.
She said the fiscal restraints will be permanent in a country where the net public sector deficit and a big domestic debt load have long contributed to high interest rates. The deficit has narrowed in recent years and stood at 2.41 percent of gross domestic product in the 12 months through January.