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Brazil Sets Up 4.5% Inflation Target For Next Two Years

Brazil will be obliged to pursue an inflation target of 4.5% for the next two years. The target for 2006 and 2007 was set, Thursday,  June 23, by the CMN (National Monetary Council).

The Council is composed of the Ministers of Planning, Paulo Bernardo, and Finance, Antônio Palocci, and the president of the Central Bank, Henrique Meirelles.

Besides determining the 4.5% target, the CMN reduced the current tolerance limit of 2.5 percentage points to 2 percentage points in 2007.

The announcement was made by Palocci in a collective interview moments after the meeting of the CNM.

The Minister argued that the target is more appropriate for a strong economy, which "has been adjusting itself to a progressively increasing extent for sustained growth."

He emphasized the success achieved jointly by the entire governmental staff and society over the course of recent months in the quest for a balanced economy and said that the success that has been achieved so far is what makes it possible to adopt more ambitious goals, such as the reduced inflation target set by the CMN.

Palocci stated that these seemingly minor steps are necessary for objectives to be attained, since experience here and in other countries has demonstrated that "when one tolerates more inflation, the only outcome is even greater inflation." That is why one cannot lower one’s guard in this sense.

When asked whether the situation of political unrest in the country, with the installation of three Parliamentary Commissions of Inquiry (CPIs) in the Congress, would interfere with economic recovery, the Minister of Finance remarked that "traumatic tidings cause temporary turmoil in any country."

He guaranteed, however, that "the country’s institutions are prepared to resolve these problems in an adequate manner."

The country and the government, in his view, have to deal with the difficulties that arise, and "we have to collaborate with the investigations and correct presentation of the facts."

After all, transparency and freedom of opinion are part of effective democracies, and "I have full confidence" in the Congress, the Ministry of Public Defense, and the Federal Police, he said, adding that "countries that behave in this manner emerge fortified from crises."

ABr – www.radiobras.gov.br

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