Brasília, 8/21/2003 (Agência Brasil - ABr) - Minister of Finance, Antonio Palocci, says that the decision to lower the basic interest (prime) rate by 2.5 percentage points - more than the market expected - does not mean the Central Bank's Monetary Policy Committee (Copom) is abandoning rigorous inflation control. "Monetary policy is being run at an adequately gradual pace. We keep one eye on inflation and all Copom decisions have a strong technical basis," said Palocci.

The minister said the Copom decision (the key rate dropped from 24.5% per year to 22%) must be seen as part of fiscal and monetary policies in effect since the beginning of the year which led the recovery from the effects of the crisis of 2002. "Those policies have been austere and serene. We have been aware of the danger that inflation poses to the poor," he said.

Palocci insisted that the fight against inflation must continue and that it is a permanent threat. He also rebutted the remark by vice president José Alencar that 2003 was a lost year, saying that with improved economic indicators it will be possible to achieve renewed growth. The minister pointed out that at the beginning of the year the forecast for inflation was running at 40%, the debt/GDP ratio was at 62%, and 42% of Brazil's debt was in foreign currencies. "This has been an important year for balancing accounts and renewed sustainable growth," he concluded. (AB)