MercoPress. South Atlantic News Agency

Roursseff wants lower interest rates; Meirelles could end as ambassador in the US

Eight years of record rates could end when orthodox Meirelles steps down

Brazil's President-elect Dilma Rousseff is unlikely to ratify central bank President Henrique Meirelles in his post, mainly because of Meirelles' aversion to cut interest rates rapidly, O Estado de S. Paulo newspaper reported on Sunday, citing a person with direct knowledge of Rousseff's plans.

Rousseff, who won a runoff vote last Sunday with about 56% of valid votes, wants the central bank to signal that borrowing costs will decline during her first year of government without risking Brazil's economic stability, the newspaper reported, citing the source.

According to O Globo newspaper, which cited people with direct knowledge of her plans, Rousseff will likely resist pressure from allies to name an austere policymaker with strong inflation-fighting credentials. Rousseff wants someone more in line with her pro-growth policy stance at the helm of the bank, Globo added.

The newspaper says that the president-elect is determined that at the first meeting of the Monetary Policy Council (Copon) interest are lowered, sending from the very start a clear message as to who is in charge of all government resources.

President Lula da Silva appointed Meirelles early in 2003 to help reassure investors that his government would not allow inflation to gather momentum. Meirelles lifted the so-called Selic rate shortly after his appointment and quickly won the trust of markets.

The role of the central bank president has been a frequent centre of controversy during Lula da Silva's almost eight years in power. Lula da Silva allies, while praising Meirelles' efforts to keep consumer prices in check, have claimed that higher interest rates put the brakes on economic growth.

Brazil has the highest borrowing costs in the world among the world's 20 biggest economies, (currently the basic Selic stands at 10.75%) a fact that makes it expensive for consumers and businesses to take on new credit to spend.

Critics also say that those high rates are attracting speculative capital from overseas, boosting the value of the country's currency, the Real, and hurting Brazilian exports overseas. Neither newspaper mentioned any possible candidates for the central bank job.

Meirelles could be offered the post of Brazil's ambassador to the United States, the newspaper reported. Meirelles, a former global president of Fleet Boston Corp., seems to like the idea, Estado do Sao Paulo points out besides the fact he has very good bank and financial contacts in the US.