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Tuesday, September 19, 2006

Economic Growth Accelerating in Brazil

This is basically a follow on to an earlier Brazil post. Henrique Meirelles, President of Brazil's Central Bank is confident that, after a sustained series of interest rate reductions, Brazil's economic growth will accelerate in the months ahead:

Brazil's economic growth will accelerate in the months ahead as 10 interest-rate cuts in the last year have yet to take full effect in spurring consumer and company spending, central bank President Henrique Meirelles said.

A pickup in job creation and increases in wages and bank lending may sustain the expansion in Latin America's biggest economy, Meirelles told a Brazilian-American Chamber of Commerce gathering of executives in Singapore. Inflation is contained and will probably end the year below the bank's 4.5 percent target.

Meirelles' comments suggested the central bank may be almost done with slashing interest rates in Brazil, which has endured some of the world's highest borrowing costs for decades. Policy makers have cut the benchmark lending rate by 5.5 percentage points since September 2005 and on Aug. 30 trimmed it by half a percentage point to 14.25 percent, the lowest in at least 20 years. They're scheduled to cut the rate again by at least a quarter of a point next month, economists predict.

``What he tried to say is that there's a lot of stimulus in the pipeline and that the monetary easing is perhaps no longer necessary,'' Maristella Ansanelli, chief economist for Sao Paulo-based Banco Fibra SA, said in an interview in Singapore. ``They don't want to overdo it with interest-rate cuts.''``The monetary flexibility has not yet been fully felt,'' Meirelles said in the meeting. ``There is significant impulse to the economy''

And in fact Lula wasn't responsible for the slowdown noticed earlier in the year, the World Cup and the tax inspectors were:

Meirelles said a slowdown in the second quarter was temporary, in part caused by the World Cup soccer tournament -- which reduced the hours that employees worked and hurt retailers and construction companies -- and by a strike of federal tax inspectors that slowed the entry of imports and shipment of exports in June. He said inventory accumulation will add to economic growth.

Brazil's economy grew 1.2 percent in the second quarter from the year-earlier period after expanding 3.3 percent in the first quarter. Both the central bank and Finance Minister Guido Mantega forecast growth this year of about 4 percent, faster than last year's 2.3 percent expansion.

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