The Brazilian central bank's decision to keep the interest rate unchanged at 10.5 per cent is unlikely to have gone down well with President Lula da Silva.
We have only one problem in this country and that is how the central bank acts, said Lula da Silva in a radio interview before Wednesday's announcement of an unchanged interest rate.
The President has long been pushing for the bank to cut interest rates more sharply and quickly, according to him a way to boost the economy. But after seven cuts since August last year, the bank is holding back. It was entirely in line with analysts' expectations, but not what the President and his ruling party had wished for or expected from the bank and its chief Roberto Campos Neto.
The bank justifies its decision by citing uncertain circumstances and signs that inflation is showing signs of increasing again. The 10.5 per cent rate for the key interest rate is one of the highest in the world in real terms.
In May, the bank noted that inflation then stood at nearly 4 per cent and that prices were on the rise. A partial explanation is rising food prices following the massive floods in parts of southern Brazil earlier this year.
