Brazil’s Central Bank to Keep Interest Rates High

In the judgment of the economist Ricardo Denadai, of LCA Consultants, despite the financial market’s lower forecasts in recent weeks, projecting a 5.7% inflation for 2005, the Central Bank (BC) will raise the government’s benchmark interest rate in January.

This will happen according to Denadai, “in order for inflation expectations to decline even more.” The BC readjusted its inflation target for 2005 from 4.5% to 5.1%.

According to Denadai, it is important to reduce inflationary expectations, since they influence the setting of prices, and the aim is to prevent abusive readjustments that exceed the level of inflation.

In his opinion, a “healthy” inflationary environment, with low inflation rates, is positive, because it maintains consumers’ real income and enables economic actors to make investment decisions with greater security.

Nevertheless, he weighed in with the observation that is necessary to evaluate how much sacrifice will be required to attain the BC’s goal, which, in his view, is “ambitious,” without stifling the growth of the economy, jeopardizing production and job creation, for example.

Based on the evaluation of analysts who believe that domestic demand will make a great contribution to Brazil’s economy in 2005, Denadai believes that, in addition to the purchase of durable goods, as occurred in 2004, next year there will be an improvement in the consumption of semi-durable products.

Translation: David Silberstein
Agência Brasil



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