MercoPress. South Atlantic News Agency

Brazilians applaud cut in interest rates

The Brazilian government, business leaders and unions on Wednesday lauded the 2.5 percent decrease in interest rates announced by the Central Bank but noted that the rates must continue to come down to help the economy.

Brazilian officials on Wednesday reduced the basic annual interest rate from 24.5 to 22 percent as inflation rates are nearing the established goals. The move surprised many Brazilians, including the most optimistic analysts, who expected a smaller cut.

"The monetary and fiscal policies are correct. Fortunately, Brazil is overcoming inflation," Finance Minister Antonio Palocci said in reference to the Central Bank's decision.

Palocci called the move "safe and cautious," adding that it was based on "technical" criteria, in response to speculation that the Bank had cut the rates more than expected because of pressure from the executive.

The cut spurred the Ibovespa index to climb 2.18 percent.

"It was a good decision, but industrialists always want interest rates to be even lower," Sao Paulo Federation of Industries (FIESP) head Horacio Lafer Piva said.

FIESP, the most influential business group in the country, has been a staunch critic of the current monetary policy, which is based on high interest rates to contain inflation, due to the negative impact the policy has had on economic activity, which at present is practically stagnant.

However, others claim that the high interest rates will help the Brazilian economy grow 1.5 percent this year.

The Sao Paulo Metalworkers Union said the rate decrease comes too late, as the economy is already paralyzed, unemployment is at record numbers and investments have fallen off.

"The interest rates must be lowered further and money must be freed up for credit so people will recover their purchasing power, start buying goods and spur factories to produce," union president Eleno Jose Bezerra said.

The rate cut also pleased a crowd of high school and university students - apparently concerned about their future prospects in Brazil's sluggish economy - who had gathered in downtown Sao Paulo earlier Wednesday to demonstrate in favor of an easing of monetary policy.