NEWS IN ENGLISH – A growth recipe: along with low interest rates, a dash of inflation (I)

13/09/2012 10:18

Mariana Branco and Wellton Máximo  Reporters Agência Brasil

Brasília – The idea of using low interest rates to keep the economy heated up has run into a wall [as explained in other articles by Agência Brasil reporters Branco and Máximo, most specialist believe that monetary policy based on low interest rates in order to stimulate consumption is not very efficient where family indebtedness and payment default rates are high].

However, according to other specialists who spoke to Agência Brasil, the government should maintain the low interest rate policy. These specialists see another problem, inflation, but say it can be disregarded. The idea would be to accept the risk of higher prices in order to keep the economy steaming ahead. Their opinion is that although inflationary pressures will rise, they can be kept under control and not become a threat.

Even with inflationary pressures, these economists recommend maintaining present monetary policy that has reduced the country’s benchmark interest rate, the Selic, to historical low levels. There is a consensus among them that an economic recovery boosted by a stimulus will compensate for higher inflation. This is based on the belief that inflation this year, as measured by the Broad Consumer Price Index (”IPCA”) will be lower than last year when it hit 6.5%, the government’s target ceiling (the official inflation target, for both 2011 and 2012 has been set at 4.5%, plus or minus two percentage points).

At the moment, inflation as measured by the IPCA for the last twelve months is 5.24%, just slightly above what it was in August 2011 for the last twelve months ending then (it was 5.2%). Market estimates for 2012 inflation are 5.2%, according to the Central Bank’s weekly survey (the Focus report).

Allen Bennett - translator/editor The News in English

Link - Governo deverá aceitar inflação maior para manter juros baixos, dizem especialistas