Campos Neto Reiterates Need For Fiscal Discipline

BCB Governor Campos Neto on the wires:

• *BRAZIL STILL NEEDS VERY STIMULATIVE MONET. POL.
• *BRAZIL MUST RESTORE CREDIBILITY OF FISCAL POLICY
• *BRAZIL'S FISCAL EXPANSION NOW COULD TRIGGER CONTRACTION
• *MARKET TO PUNISH BRAZIL IF WE REMOVE SPENDING CAP

Highlighting back to a comment from Campos Neto from Mid October: "If there is a breakdown or we think that some type of creative accounting will make the long-term debt profile worse, our initial reaction is to remove this instrument (forward guidance) that forecasts lower rates for a longer time."

There has been a continued emphasis on the fiscal outlook and its close link to Monetary Policy. This indicates how important the upcoming reform agenda and announcements surrounding the emergency income-transfer program will be for the COPOM and their upcoming decisions surrounding forward guidance for rates.