MercoPress. South Atlantic News Agency

Brazil's basic interest rate unchanged.

The Monetary Policy Committee of the Brazilian Central Bank decided unanimously this Wednesday to keep the basic Selic interest rate unchanged at 16%.

The decision did not surprise local markets and now all eyes will be set in the Committee's next meeting in mid August. This is the third consecutive month that the Selic rate was left unchanged. Last April the basic rate was dropped 0,25%.

Market analysts also believe that the cautious approach when commerce and industry are demanding lower rates could be linked to fears about the agreed inflationary target for 2004 which was fixed at 5,5%, but which retail prices projection indicate could be reaching 7,08%.

President Luiz Inacio Lula da Silva administration, contrary to what was expected has chosen a most orthodox approach regarding government finances which has been praised by the IMF but condemned by significant factions of the ruling coalition.

The latest interest rate announcement coincides with the arrival of an IMF technical delegation with which Brazil is discussing ways of promoting infrastructure development projects, particularly in the transport sector, that are left out of the overall agreed fiscal targets.

Last February IMF admitted discussing the issue when evidence showed that low investment in infrastructure is actually conditioning long term growth of emerging countries.

Basically the idea is not to compute in budget primary surplus considerations those infrastructure projects that limit the country's economy prospects.

However IMF insists in the cost/benefit analysis of each project plus the fact that they must be long term, even when the economy is in recession. Another option is the anti-cyclical surplus meaning the government cuts costs drastically when the economy is expanding and pumps resources when in recession.