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Brazil Expected to Raise Key Interest Rate This Week

Brazilian coinConcerned with inflation, Brazilian Central Bank President Henrique Meirelles said Brazil’s next government will need to be “very serious” about keeping inflation within its target range so real interest rates can continue to fall.

“Real interest rates are on a downward trend,”  Henrique Meirelles said at an event in New York. “It’s important that in order to keep it that way, the next government be very serious about keeping inflation inside the target.”

Inflation in the 12 months through mid-April accelerated to an 11-month high of 5.22% and exceeded the government’s 4.5% target for the third month in a row. Brazilian economists expect policy makers meeting this week to raise the benchmark interest rate for the first time since September 2008 to slow inflation.

The central bank has kept the overnight rate at a record low 8.75% since July to foster economic growth that may quicken this year to the fastest pace in more than two decades. Brazil lowered borrowing costs to fight the global financial crisis, spurring credit growth and boosting domestic demand.

Brazil’s real interest rate, or the difference between the 8.75% benchmark rate and the country’s 5.22% annual inflation rate, is 3.53%, which is the third highest among 53 countries.

Meirelles said that inflation and higher interest rates will help cool demand ensuring that Brazil will grow sustainably and with prices under control.

Analysts are split over the size of the interest rate increase they see policy makers implementing at the end of their two-day meeting this week. While some economists expect a half-point increase in the Selic to 9.25%, others estimate an increase of three quarters of a percentage point.

Meirelles added that Brazil’s current account deficit won’t keep widening at the same pace and will begin to “adjust” as the global recovery fuels demand for Brazil’s exports.

Brazil on April 22 said the current account gap widened in March to the highest this year. The deficit in the current account, the broadest measure of trade in goods and services, rose to US$ 5.1 billion in March after a US$ 3.3 billion gap in February, the central bank said in a report distributed in Brazilian capital Brasília.

Mercopress

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  • Mertin

    Brazil will not see a global recovery. There will not be a global recovery. European and American spending will remain depressed for quite some time. Brazil will need to look to Asia and there it finds it is not price competitive.

    So Brazil will do what it always does… just keep selling commodities and let others add value.

    If Brazil were serious about being competitive it would sort out interstate anti-competitive legislation…

    it would allow the import of second hand vehicles to sort out the absurd situation in which Brazilians can’t afford clapped out 20 year old cars and a 30 year old truck can still cost $15,000: the price of a new one in the US…

    it would increase investment in research at universities instead of cutting it by 60%…

    it would sort out its legal system so a contract meant something and a corrupt politician stayed in jail…

    it would reduce the size of the state and reduce taxation so that the middle class weren’t living hand-to-mouth chasing short term goals. Why do you think that a European will invest in planting an oak tree that takes 80 years to grow but a Brazilian won’t plant a Brazilian rosewood tree that is worth much more because it takes 50? So they burn the world’s most valuable timber to plant eucalyptus, the world’s cheapest.)

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