Brazil Urged to Cut Interest Rates to Prevent Dollar from Falling Further

Growing dollar A group of former government financial officials and economists from the Latin America suggested that Brazil and other countries in the region should consider the possibility of a coordinated interest rate cut, in consultation with the IMF in order to fight the appreciation of local currencies.

"A coordinated rate cut of interest rates or a quantitative increase of money circulation should be considered in consultation with the IMF," said a release from the Financial Affairs Latin American Committee, CLAAF.

Interest rates in the region remain at different levels with Chile having cut them from 8.25% to 0.5% while in Brazil they remain at 8.5% with prospects of further increases in the coming year.

With the worst of the recession behind the challenge for the region is the appreciation of the currencies such as in Brazil and Colombia, says the release from the group of former Economy and Finance ministers and ex central bankers.

"Our idea is to desacralize certain concepts. It would not be advisable to adopt rigid positions against expansionist fiscal policies," said Argentine economist Carlos Calvo, former chief consultant from the Inter American Development bank.

To apply a tax on capital inflows such as Brazil did recently with the 2% levy is not the best method but the alternatives that had been under consideration were "far worse" revealed Pedro Carvalho de Mello, former chief economist from Brazil's Securities and Exchange Office.

When asked to name specific countries that should adopt a coordinated policy, CLAAF members preferred to remain silent but mentioned as possible candidates, Brazil, Colombia, Peru and Chile.

All these countries have a short term "currency appreciation challenge" which can have an effect on the balance of payments, warned Roberto Zhaler, former head of the Chilean Central Bank.

CLAAF meets regularly and discusses proposals for the region and believes that the counter cyclical policies in support of domestic credit and corporations are appropriate, although the risk which persists and is most threatening is "protectionism", argued Lilián Rojas Suárez president of the organization.

A year ago, at the peak of the slowdown, CLAAF anticipated that the region needed annually US$ 250 billion in credit.

"That number remains valid", said Rojas-Suárez

CLAAF also stated that the new credit facilities from the IMF are still small compared to demand, adds the release signed by Peruvian economist Rojas-Suárez.

Mercopress

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