Brazil Said to Consider Key Rate Increase If Budget Plan Derails

Brazil’s central bank will consider a marginal increase in interest rates if the government fails to shore up fiscal accounts, said a member of President Dilma Rousseff’s economic team.

Policy makers still expect Rousseff to implement tax increases and spending cuts that will reverse a projected budget deficit before interest payments into a surplus next year, said the official with knowledge of monetary policy. It’s premature to change the strategy of keeping interest rates at the highest level since 2006 before there is a clearer picture of the budget situation, said the official, who asked not to be named because the discussions aren’t public.

Traders forecast the 14.25 percent Selic rate could rise to as much as 16.25 percent by March, even after central bank PresidentAlexandre Tombini signaled he wouldn’t lift borrowing costs for now. Unlike policy makers, investors doubt Rousseff will have support to win approval for necessary austerity measures in Congress.

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