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Low Interests Rates in Brazil Only After Inflation Is Under Control |
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Written by Stênio Ribeiro
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Wednesday, 07 December 2005 |
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Having inflation under control is an essential prerequisite for financial investors to accept a lower rate of return on their investments. When these conditions are met, "the level of interest rates in the economy can decrease."
Using this argument, Henrique Meirelles, president of the Central Bank (BC), defended the world's highest benchmark interest rate, Brazil's Selic, which stands at 18.5%, annualized.
He confessed, however, that the war on inflation sometimes "requires bigger sacrifices than were originally foreseen."
Yesterday, December 6, Meirelles participated in a seminar on Risks, Financial Stability, and Banking Economics in the auditorium of the Central Bank.
He reaffirmed that no country achieves growth with constant high inflation and that maintaining inflation at a low and stable level "is essential for the recovery of real returns to labor and the improvement of social indices."
According to Meirelles, the pace since last year of aligning inflation closer to the government's targets "did not smack of anything overly ambitious and paved the way for significant gains in terms of production growth and job creation."
He also observed that, although estimates indicate that inflation this year will amount to 5.6% - 0.5% more than the official target of 5.1% - forecasts for next year are in consonance with the official target of 4.5%.
Agência Brasil
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he should not have reduced as much as he did during his first year as CB chief.
This would have avoided, later the rises that followed from 16 to 19.75 % !
This demonstrates that they were first politically suggested or directed.