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Central Bank Raises Brazilian Rate

May 23, 2001

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SAO PAULO, Brazil (AP) _ In a move that could further slow economic growth already threatened by a severe energy crisis, Brazil’s central bank Wednesday hiked its key lending rate by 0.5 percent to 16.75 percent.

It was the third 50 basis point hike in the Selic rate in as many months, after two years of falling rates had gone hand in hand with growth and investor confidence in Latin America’s biggest economy.

The bank cited inflationary pressures _ including some resulting from the energy crunch _ as the main reason for the rate hike.

Odair Bate, chief economist at Lloyds TSB Group in Sao Paulo, said the hike was confirmation that the central bank was not wavering from its 4 percent inflation target for this year.

That target has come under pressure recently, largely thanks to the real sliding some 17 percent against the dollar since the beginning of the year. That has helped boost food and fuel prices. Oil prices are also rising on the international market.

The energy crisis, caused by record low rainfalls that have crippled the country’s hydroelectric power network, is also likely to push inflation higher.

Brazilians are being asked to cut power consumption by an average 20 percent and pay higher electricity prices beginning June.

Analysts are lowering 2001 growth forecasts by anything upto 2 percent, meaning Brazil could grow as little as 2 percent this year. Some are even predicting recession for 2002.

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