Brazil frustrates business hopes for rate cut

  • Business
  • Thursday, 22 Jul 2004

BRASILIA, Brazil (AP) - The Brazilian Central Bank on Wednesday once again frustrated the hopes of business leaders by keeping the nation's base interest rate at a towering 16 percent. 

It was the fourth month in a row without a rate cut. 

In a brief statement, the bank cited rising inflation expectations as the reason for keeping rates stable. 

Business groups such as the influential Brazilian Federation of Industries and the National Industrial Confederation have been calling for interest rate cuts as a way to jump start Brazil's economy, which is making a slow recovery from a 2003 recession. 

Even Brazilian Vice President Jose Alencar, a former textile executive, has joined the chorus of those demanding interest rate cuts. 

But Wednesday's cautious decision came as no surprise to financial market analysts. 

A survey of analysts released by the central bank itself on Monday showed a consensus pointing to annual inflation this year at a worrisome 7 percent. 

Although down from last year's 9 percent, such a figure would represent a significant departure from the government's official inflation target for 2004 of 5.5 percent. 

Much of the inflationary pressure is coming from rising international oil prices, over which the central bank has little control. 

The classic way to counter such inflationary pressures, according to analysts, is to keep domestic interest rates high. - AP 

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