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Brazil's President demands strict fiscal adherence, approving government spending cuts.

TraderKnows
TraderKnows
07-04

Recently, Brazilian President Lula approved a series of government spending cuts, requiring the finance department to strictly adhere to the fiscal framework.

Brazilian President Luiz Inácio Lula da Silva on Wednesday ordered his economic team to adhere to the country's fiscal framework and approved proposed spending cuts, Brazil's finance minister revealed to reporters.

In recent weeks, Brazilian assets have been sold off due to market concerns that the government's reluctance to cut spending could lead to fiscal deterioration. Investors are worried about the government's ability to comply with the fiscal framework passed last year.

However, on Wednesday, the Brazilian real rose nearly 2% against the dollar in spot trading, as market participants awaited details of Lula's meeting with his economic team. Earlier in the day, the president stated that the government would remain committed to fiscal responsibility.

After the meeting in Brasília, Finance Minister Fernando Haddad told reporters, "The president's first order to us was 'comply with the fiscal framework.'" He was referring to a constitutional law that sets limits on government spending.

Haddad also stated that Lula approved the proposal put forward by officials during the meeting to cut 25.9 billion reais ($4.7 billion) in government spending, which would enable Lula's administration to adhere to the fiscal framework next year.

These measures include stricter scrutiny of ineligible social benefits, he said. Some measures might be implemented sooner if needed to help the government meet fiscal regulations this year.

Haddad added that the government might also freeze planned expenditures, depending on the situation.

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Inflation

Inflation refers to the phenomenon where the purchasing power of a country's (or region's) currency decreases, leading to a general rise in the prices of goods and services. It is reflected in the fact that, over a certain period, the same amount of money can only buy fewer goods and services.

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