Brazil Cites Low Inflation and Idleness to Keep Interest Rates at 8.75%

Brazilian real With inflation below target, Brazil's central bank, for the third time in a row, kept the benchmark Selic interest rate at a record low. The bank's eight-member board, led by President Henrique Meirelles, voted unanimously on Wednesday to keep the overnight rate at 8.75%.

In a statement accompanying the decision, the committee cited "the remaining margin of idleness in productive factors, among other reasons" for deciding to keep the rate at a level that is "consistent" with a "non-inflationary recovery."

Economist estimates for 2010 inflation, while rising in five of seven central bank surveys taken since the bank's last meeting, remain below the 4.5% midpoint of policy makers' target range.

Brazil emerged from its first recession since 2003 after the government slashed taxes and pumped cash into the nation's money markets while policy makers cut rates at five straight meetings.

Annual inflation in November, as measured by the benchmark IPCA index, accelerated for the first time since February to 4.22%, the national statistics agency said Wednesday. From the previous month, prices rose 0.41% in November.

Earlier in the day Finance Minister Guido Mantega said the central bank will keep the benchmark rate at 8.75% next year. Companies will meet higher demand by stepping up investment, and as a consequence inflation will remain under control, Mantega told reporters in Brasilia.

According to a weekly central bank survey of economists taken Dec. 4 and published Dec. 7, the IPCA index will end 2010 at 4.48%. The same survey shows economists expect Brazil's GDP to expand 5% next year, more than twice as fast as the same survey taken a year ago.

After expanding more than forecast in the second quarter, the 1.6 trillion USD Brazilian economy is likely to grow at the quickest pace in more than four years in the third quarter. Led by domestic demand, the economy expanded 1.9 % in the second quarter, ending the first recession since 2003.

The expansion in the third quarter should be "quite strong" and Brazil should have a "slightly positive," growth this year, Meirelles anticipated Dec. 4.

To boost growth the administration of President Lula da Silva cut taxes, injected about 100 billion reais (US$ 57 billion) into money and currency markets and pushed ahead with spending on infrastructure and low-income housing.

Mercopress

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    Inflation rate
    The Brazilian government must make good strategies with collaborating with the banks. They must continue to make good productions and inflation’s meet. Brazil must do its well to enter the global market.

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