Traders, finance minister differ on Brazilian interest rate future

Guido Mantega, Brazil's forceful and outspoken minister of finance, says that deficit measures from incoming president Dilma Rousseff will give the country room to cut its interest rates as government spending decreases.

"I believe the central bank can cut in 2011," Mantega said in an interview after Group of 20 meeting in Seoul this weekend, Bloomberg reported. "We are going to create conditions to open a space for the interest rate to fall. How much it will fall, I don’t know, but I can assure you it will fall."

However, bond traders don't appear to agree - interest rate futures indicate that rising inflation will force the central bank - currently helmed by Fernando Meirelles - to raise interest rates and head off inflation that's crept up towards 5 percent.

Mantega, who believes that foreign quantitative easing has helped make Brazil's currency unfairly expensive, would like to see lower rates so that foreign investors stop buying so many Brazilian assets. Taxes on fixed-income assets and derivatives have both slowed, but not stopped, the flood of foreign money that's pushing the real up against the dollar, the euro and other currencies.