Fearing Inflation Brazil Gets Ready to Hike Interest Rates

Brazil's Central Bank chairman Henrique Meirelles The president of Brazil's Central Bank, Henrique de Campos Meirelles said that his bank is ready to cap pressure on prices with the purpose of keeping inflation under control even when this could impact on the strong economic growth of the economy.

In April, the Brazilian Central Bank rose the basic Selic rate 50 basis points to 11.75%, higher than what was expected. Inflation in Brazil is in the range of 5%.

Many analysts are convinced the bank will again hike rates particularly since Brazil was recognized by risk rating agencies -for its orthodox policies – with investment grade which will attract even more capital to the country from overseas.

"It's important the Central Bank adopts measures with sufficient anticipation so Brazil can continue along the path of sustained healthy growth with low inflation," said Meirelles during a hearing before the Brazilian senate's Economic Affairs Committee.

Meirelles also cautioned there was a risk that wholesale (producers) inflation could extend to consumer prices during the coming months. He also admitted that core inflation was showing signs of acceleration.

The Brazilian economy expanded 5.4% in 2007 the highest in the last three years following a long policy of interest rate cuts.

But the consumer prices index showed it was picking up speed on consumers' greater spending who fear an interest rate increase to help contain inflation.




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