MercoPress. South Atlantic News Agency

Brazilian Central Bank insists with tight money

Brazil's Central Bank will continue to raise the basic interest rate, Selic, and will keep it high for a considerable period, in spite of declining inflation risks and strong criticism from business and unions.

According to the Bank's Monetary Policy Committee minutes of last week which raised interest rates for the sixty time running to 18,75%, officials point out that private economists expectations of future inflation "remain high".

In the last six months the Bank has steadily risen rates from 16 to 18,75%, reacting to strong inflationary pressures pushed by the hefty growth of the Brazilian economy which is believed to have expanded over 5% in 2004.

This has motivated serious criticisms even from inside the Brazilian administration, who question the medium term impact for export industries and domestic demand with such level of interest rates, "the highest in the world".

The Bank expects that the latest and decreasing wholesale prices index together with a seasonal downturn in food prices will help soften the retail index.

However in the minutes Bank officials warn that the Selic rate increase in the coming months will depend on a benign economic scenario and the perception by economic agents that "after this process the interest rate will remain constant for a sufficiently considerable period".

The minutes were released almost in coincidence with the latest Brazilian unemployment figures for January, 10,2%, a surprising increase from 9,6% last December.

Nevertheless the figure is below January 2004, (11,7%) and the lowest since January 2002, according to the Brazilian Geography and Statistics Institute.

Average metropolitan areas workers income increased 2,2% in January over December, reaching 920 Reales equivalent to 359 US dollars per month.