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Even the IMF Wants Brazil to Lower Interest Rates

Inspectors from the International Monetary Fund (IMF) praised Brazil’s economic performance following a three-day inspection. The IMF applauded Brazil’s low inflation and strong exports, but said the country now should reduce sky-high interest rates.

"The country’s economy is doing very well," said Charles Collyns, head of the delegation. "The Central Bank did very well to show markets that it is determined to cut inflation."

Inflation was 7.6% last year and fell to 6% in the 12-month period ending in September. The Central Bank’s target for 2005 is 5.1%.

Exports are expected to push the country’s annual trade balance way beyond the original target of US$ 30 billion, and Brazil has overtaken Mexico as Latin America’s largest economy in dollar terms.

The next step is to reduce interest rates, now at a scorching 19.5%, Collyns said. "Cutting interest rates in a clear and cautious way is important to consolidate the progress achieved so far," he said.

The IMF also endorses Brazil’s policy of buying dollars to bolster its hard currency reserves. "It’s important for the government to maintain a floating exchange rate, while it uses the opportunity to recompose its reserves," said Collyns.

Brazil announced in March that it wouldn’t renew its debt agreement with the IMF. But the country still must repay some US$ 15 billion from past loans, and the IMF monitors Brazil’s economic performance.

Mercopress – www.mercopress.com

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