INTERVIEW-Brazil's Mantega urges Fed to communicate tapering 'clearly'
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SAO PAULO, Oct 10 (Reuters) - The U.S. Federal Reserve should communicate clearly how it will phase out economic stimulus over the coming months to minimize market instability and prevent problems for emerging economies, Brazil's Finance Minister Guido Mantega said in an interview on Thursday.
The stimulus reduction should also be carried out "very gradually", Mantega said, noting that the nomination of Janet Yellen to replace Fed Chairman Ben Bernanke appears to be a step in that direction.
Mantega, who skipped this week's International Monetary Fund and G20 meetings in Washington to focus on domestic issues, also said he believes that higher interest rates in Brazil will not be a drag on economic growth. With over $370 billion in international reserves, Brazil is also very well prepared to weather any market instability, Mantega said.
He added that leading emerging economies should have time to set up a joint reserve fund next year before the prospect of higher interest rates in the United States rekindles volatility.
"More clarity and more precision as the stimulus is reduced. This is what we've been recommending," Mantega said in the interview in his Sao Paulo office.
"If they announce: 'we are going to cut it by $10 billion a month; instead of $85 billion it will be $75 billion,' such a decision would clearly have no effect" on markets, he said.
Signs that the Fed could start tapering its $85-billion-a-month asset purchases in September sent shockwaves through world financial markets earlier this year, causing steep losses in emerging market currencies such as the Brazilian real .
Yellen, who next year will become the first woman ever to lead the U.S. central bank, is a strong advocate of the Fed's aggressive actions to support economic growth through low interest rates and asset purchases.
She and fellow policymakers may need to keep the stimulus at full gear for an even longer period as the current political deadlock in Washington hurts economic growth, Mantega said.
But the United States looks poised to avert a default, Mantega added, which would likely leave the next round of heightened market volatility for when a Yellen-led Fed starts raising interest rates in a few years.
"I believe Janet Yellen will continue Ben Bernanke's policies," Mantega said. "There is an excess of monetary stimulus and at some point this will need to be reduced. The right way to do it is in a very gradual way."
(Additional reporting by Cesar Bianconi; Editing by Richard Chang)