For the 2nd meeting then Copom holds 10.75% interest per annum

With maintenance, real interest rates in Brazil follow the highest in the world.
High interest rates tend to attract capital and push the dollar, economist assesses.

Alexandro Martello G1 in Brasilia
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The Monetary Policy Committee (Copom) of the central bank met on Tuesday and Wednesday (19:20) and decided unanimously to maintain the basic interest rate of the Brazilian economy stable at 10.75% per annum. This is the second meeting followed in which the Monetary Policy Committee interest rates are stable.

The Committee began climbing the base rate of the Brazilian economy in April, and then promoted two more increases in June and July this year. Previously, interest was at 8.75% per annum, the lowest in history. Thus, raising the total interest in 2010 was, until now, two percentage points.

Monetary Policy Committee's decision came in line with the expectation of most financial market analysts, according to research conducted by the Central Bank last week. The forecast of economists from banks is that the rate to rise again only in April next year - when to move to 11.25% per annum.

Definition of interest
In Brazil, the force system of inflation targeting, by which the Fed has to gauge the interest to achieve pre-set targets. For 2010 and 2011, the central goal of inflation is 4.5% with a tolerance band of two percentage points up or down. Thus, the AFD can be between 2.5% and 6.5% without a goal is formally violated.

After the meeting, the Fed released the following statement: "Evaluating the macroeconomic outlook and the outlook for inflation, the Committee decided unanimously to keep the Selic rate at 10.75% pa, without bias."

Real interest rates and attract capital
With the maintenance of basic interest rates at 10.75% per year, Brazil is in the lead alone in the world ranking of real interest rates - which are calculated after deducting the inflation forecast for the next twelve months.

According to data from economist Jason Vieira at brokerage Cruzeiro do Sul, the real interest rate in Brazil is 5.3% per year, more than double the second place (South Africa, with 2.4% years). With the rising interest in China, the nation went to Russia and stayed in third place with a real rate of 2% per year. The average rate of 40 surveyed countries is negative 0.5%.

"The interest rate is very attractive. Compete with [almost] 6% per annum of setting is very complicated. The eye is still here and blame the Central Bank. The investor will remain attracted," said Vieira. He said the new round of increase in the IOF, authorized by the Ministry of Finance last week, however, helps to cool the pressures of a falling dollar. "The issue of IOF weights," he evaluated.

War currency
BC's decision to keep interest rates at 10.75% per year happens at a time in which most nations have chosen real interest rates near zero, and also by actions to devalue their currencies. The goal is just to stimulate their exports to other countries, the "currency war" - a term coined by the finance minister, Guido Mantega.

Among the countries that acted in this direction are Thailand, Japan and Colombia. In addition to the IOF tax in Brazil, the Brazilian government has also intensified in recent months, buying dollars in the spot market, with the goal of trying to prevent a further fall in the dollar - a factor that lowers the Brazilian exports and undermines the competitiveness of national companies.

The United States, in turn, are acting in the so called "quantitative easing" monetary policy, which means that, to stimulate its economy, still recovering slowly from the international financial crisis, the country could flood the market with dollars. With the strong link of international finance, the trend is that the rest of the currencies to appreciate against the dollar.

The only encouragement in the "war exchange" was on account of China, which this week announced the first increase in its interest rate since December 2007. The rate for deposits of one year rose to 2.5% per year, while the rate for loans was 5.56% per annum. To raise interest rates, the Asian economy tends to attract more capital.

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