Something Wrong with Brazil’s Interest Rates

    Interest rates are currently on the rise in Brazil. Earlier this week the Central Bank raised the basic interest rate to 17.25 percent. The Bank did this in an attempt to cool inflation.

    This method of hiking interest rates might restrain economic growth in 2005. Brazil has many economic and social problems, but the government has to make some minor changes to the current interest rate policy.


    Currently, the inflation targeted for the year is 5.5 percent. Next year the target is set at 4.5 percent. The Broad National Consumer Price Index (IPCA) accumulated for this year is below 6 percent.


    But many inflation figures are on the rise. This is mostly due to government controlled price hikes and somewhat to the increase taxation of imported products.


    The growing economy will slow in 2005 and this seems unacceptable to many on the Left. But even some who worked for the Cardoso administration have also a desire to change the interest rate policy.


    Luiz Carlos Mendonça de Barros and Gustavo Loyola both believe in minor adjustments to the interest rate policy. Mendonça believes that the inflation target set for 2004 of 5.5 percent would make more sense if the Central Bank were given 2 years to achieve this target.


    Mendonça was the president of the Brazilian Development Bank (BNDES) and later became the Communications Minister under the Cardoso administration.


    Ex-president of the Central Bank, Gustavo Loyola also believes the Central Bank should change it current timetable to meet its targeted inflation rate.


    In Loyola’s opinon the Central Bank should be given 18 months to meet the inflation targeting set by the Ministry of Finance and Planning.


    In his opinion this would help set the Central Bank’s focus more on the future instead of momentary inflation spikes.


    Lessa Leaves


    Carlos Lessa, was fired from his position as president of the BNDES by President Lula after criticizing the current economic model adopted by the Central Bank.


    Many, leftwing intellectuals and politicians supported maintaining Lessa at his position. Lessa said that Lula “was being tricked by the elite” .


    He also praised Lula for becoming President while overcoming major obstacles throughout his life. Lessa also believes now that Lula’s administration is a center-right government


    Oddly enough the center-right PP Party (Progressive Party) said that it will gain one cabinet position in the current administration.


    The president of the PP Party, Pedro Correa has already appointed PP House lider Pedro Henry for the future cabinet position


    The PP has roughly 50 members in the Chamber of Deputies but holds no seats in the Senate. Clearly, Lula is attempting to increase his power over the Congress as his government fears a possible dissertion by the PMDB party.


    President Lula must be planning a major ministerial reform as he shifts Guido Mantega from the Planning Ministry to the presidency of BNDES.


    The PP will be likely be given one position either in the Integration Ministry or in the Sports Ministry.


    If the PMDB party stays in the government coalition they will likely gain a few more cabinet positions in the government. President Lula is having dinner with most of the PMDB senators in an attempt to keep the party happy as a government ally.


    Celso Furtado Dies


    One of Brazil’s greatest economist and intellectuals died Saturday, November 20, in Rio De Janeiro. He has written many great books throughout his life.


    It is hard to agree with everything he states, but his ideas of how to repair the Brazilian economy are wise. I recommend reading “No to Recession No to Unemployment”.


    Celso Furtado was a great man with the best ideas in reforming Brazil for the better. President Lula has personally paid his respects to Celso Furtardo. May he rest in peace.


    Visit thebraziliandaily.blogspot.com for your daily dose of Brazilian economic and political commentary.

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