MercoPress. South Atlantic News Agency

Basic rate in Brazil remains unchanged at 16%

The Monetary Policy Committee of the Brazilian Central Bank decided this Wednesday for the third consecutive time to keep the basic Selic rate unchanged at 16% (9% in real terms). The decision was unanimous.

According to the Brazilian Central Bank, following "the assessment of the macroeconomic scenario and inflation prospects, Copom decided, unanimously to keep the Selic rate at an annual 16%".

Therefore the 16% Selic rate will remain effective until July 21 when the next Copom meeting is scheduled. However Brazilian markets continue believing 2004 will end with the Selic rate at 14,75%.

The Selic basic rate, a formidable instrument to combat inflation, has become a controversial issue in Brazilian politics since industries linked to domestic demand complain bitterly about its negative impact for industry and consumers.

The Central Bank and the most orthodox members of the Brazilian economic team insist that Brazil must finish with inflation and so help the country reduce its GDP/debt ratio, which is indexed to the US dollar.

A better ratio means better access to international credit and lower interests.

Brazilian analysts consider the Copom latest decision a "wait and see" attitude, since much will depend on what the US Federal Reserve finally agree, most certainly an increase in the prime rate.