Brazil's BNDES head calls for lower interest rates, higher taxes on online betting

BRASILIA, May 26 (Reuters) - The head of Brazil's state development bank BNDES, Aloizio Mercadante, called on Monday for a reduction in the country's benchmark interest rate Selic, while also proposing higher taxes on online betting.

Speaking at an event hosted by news outlet Brasil 247 in Rio de Janeiro, Mercadante said that a recent controversial hike in the financial transactions tax (IOF) has a contractionary effect, as it raises the cost of credit.

"So let's lower the Selic (rate), because there's room to do it gradually, safely, and sustainably," he said.

The central bank earlier this month raised interest rates to 14.75%, the highest in nearly two decades, and left the door open for future moves, stressing that rates must remain at a restrictive level for an extended period to tame inflationary pressures.

Mercadante also argued that increasing taxes on widely popular online betting platforms in Brazil could help offset the IOF hike and "create an alternative."

The IOF hike, announced on Thursday, targeted certain foreign exchange transactions, corporate credit, and a specific type of private pension funds.

It sparked sharp backlash from financial markets, prompting the government to reverse a portion of the tax increase, particularly affecting offshore investments, within hours amid criticism that the measures amounted to capital controls.

The tax adjustment was enacted through a presidential decree, bypassing congressional approval, as part of President Luiz Inacio Lula da Silva's broader effort to reduce the spending freeze required to meet this year's goal of eliminating the primary fiscal deficit.