MercoPress. South Atlantic News Agency

“Virtuous circle” forecasted for Brazil.

The Brazilian Central Bank expects a rebound of expectations in the coming months that will help the country keep inflation below the 5,5% target agreed for next year and a significant drop in interest rates that now stand at a basic record of 26,5%.

With tax revenue in the rise, the local currency, Real stronger, --it's now below the 3 R to the US dollars threshold--, growing exports, inflation under control, lower oil prices, Brazil could see the Consumer Price Index in 2004 fall to 4,1%, according to one of the reports sent by the Brazilian Central Bank to Finance Minister Antonio Palocci.

In this context private analysts believe inflation could further drop, helped by lower adjustments of public utility rates, and even more important the basic interest rate could contract ten points, helping the economy expand above the 3% expected by banks and the country's main corporations.

Economist Rogerio Studart from the Inter-American Development Bank argues that all is ready for the start of a "virtuous circle" which could mean the return to Brazil of long term direct investment.

"With the economy expanding tax revenue will increase, and the government could further raise the primary budget surplus above the current 4,25% surplus", said Mr. Studart adding that "the basic interest rate might well drop two points beginning this month".

Regarding the potential impact for the country's export trade of the 18% recovery of the Brazilian currency against the US dollar since the beginning of 2003, experts argue that domestic demand is still too weak, and companies are forced to look overseas for markets. Mr. Jose Augusto de Castro board member of the Foreign Trade Association of Brazil said that "even with a cheap dollar exports will boost the economy, since local demand has been falling for the last three months, so has employment and costs have remained basically unchanged".

The Brazilian economy is expected to grow 1,9% in 2003.

"Commodity exports are booming and a cheaper US dollar will help importers, and should begin to permeate in a few months times. At the moment we're working on a US dollar equivalent to 3,90 Reales", said Mr. De Castro.