(Adds draft constitutional amendment)
By Jamie McGeever and Marcela Ayres
BRASILIA, March 27 (Reuters) – Brazil’s central bank on Friday called for emergency powers to buy bonds to stabilize financial markets during the coronavirus outbreak, with a draft constitutional amendment seen by Reuters giving the ability to buy “public or private financial assets.”
The central bank should be able to support markets with its huge balance sheet by “buying credit directly” as monetary policymakers have been doing around the world, bank president Roberto Campos Neto told reporters in a news conference.
The draft amendment seen by Reuters cites the need to intervene in bond markets in times of “public calamity” or “grave economic rupture”, adding that the current outbreak is a “grave situation” for the Brazilian people and markets.
The proposed changes center on Article 164 of the Brazilian constitution, which analysts say has created a gray area around the untraditional monetary policy known as quantitative easing.
The article currently bans the central bank from lending “directly or indirectly” to Treasury, but the following clause allows the central bank to buy government bonds on the secondary market to manage interest rates and the money supply.
Some economists have said it is inevitable that the central bank will resort to quantitative easing given the gravity of the economic crisis Brazil faces this year. (Reporting by Jamie McGeever and Marcela Ayres Editing by Brad Haynes)
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