MercoPress. South Atlantic News Agency

Brazilian industry protests interest rise.

The Brazilian Central Bank Monetary Policy Committee decision to raise the basic Selic rate a full half point, to an annual 17,25%, the third consecutive increase this year, received severe criticism from industry's federations.

"Industry faces with preoccupation the monetary noose, a sequence increase in interest rates which can condition with a negative impact, future growth", said Armando Monteiro from the National Industry Confederation.

"This decision once again, frustrates Brazilian society. The Selic increase keeps basic rates among the highest in the world", underlined Paulo Skaf from the Sao Paulo Federation of Industries adding that the "only coherent alternative is to cap government spending. Between January and September 2004, the budget expanded 10,6% above inflation and expenditures 12,6%. We need tighter fiscal controls and less high interest rates".

The Monetary Policy Committee, according to an official release was a unanimous nine members' decision, including Central Bank president Henrique Meirelles, which reversed the rate to the same levels of a year ago.

Although the minutes of the discussions won't be available until next week, the Central Bank had anticipated that "a process of moderate adjustment" would be implemented to counterbalance strong international oil prices in line with the Bank's purpose of keeping inflation under control.

Brazilian inflation so far this year accumulates 5,95%, above the stipulated target of 5,5% for the whole of 2004, with the possibility of reaching 8% in 2005.

Actually the General Prices Index during the first two weeks of November had a monthly projection of 0,83% compared to 0,23% last October. The increase was extensive both to retail and producer prices, which jumped from 0,25% to 1,02%.

The Sao Paulo Chambers of Commerce Federation also protested the decision arguing that "a greater credit restriction at the beginning of 2005 will put a brake on retail sales with a negative influence on domestic industry supply, investment and creating jobs".

"The most rational attitude should have been to leave interest rates unchanged", added the federation's president Abram Szajman.

The latest Central Bank decision also had its political impact: the chairmen of two of the government's main banks resigned. Although the posts were immediately filled and the outgoing officials made no comments, Brazilian markets are well aware that Mr. Meirelles most orthodox tight money policies have great critics inside President Lula da Silva's administration, including vice-president Jose Alencar.

However this time the presidents from Banco do Brasil and the National Economic and Social Development Bank, Cassio Casseb and Carlos Lessa left their posts.

Mr. Carlos Lessa a respected Economics professor with a long political career in a recent interview described Mr. Meirelles performance in the Central Bank as "a nightmare" adding that all his banking signals are that "(economic) growth at this moment is a sin".