Inflation rate of Brazil has increased to its greatest stage in 6 years. Consumer costs increased to 7.31 percent in Sept. from a year ago, national statistics agency recently said. This follows a 0.5 percent cut of interest rate at the end of August. The central bank mentioned a "substantial deterioration" in the worldwide economy in cutting rates to twelve percent.
Many economists believe that the action of bank was hasty. "The interest rate cut came very early," whispered Oxford Economic's Lloyd Barton. "It is acting as a trigger for a turn down in the exchange rate, and that’s aggravating the central bank's dilemma with inflation."
Nevertheless, Brazil's President Dilma Rousseff wishes the price of borrowing to be lessened again. She also said that policymakers should weigh up the danger of a worldwide recession. Alexandre Tombini president of the central bank says he thinks the rate of inflation will rise in September and then go down.
The bank plans an inflation rate of 4.5 percent. Some forecasters believe it will have to consider different action to avert one of the key drivers of world development from overheating. "They’re in a boom stage and face a problem," whispered Ricardo Cabral a former consultant to the World Bank on Brazil.
"Real interest rates had been high, causing foreign funds to flow into Brazil, approaching its currency higher. The rate cut might thus have been proper. "To evade vicious effects on credit growth, the central bank might follow the example of the Chinese and boost bank reserve needs."
China's central bank has enforced its lenders to hold on to more of their cash. The limitation on lending is planned to cool growth and restrict cost rises. Nevertheless, forecasters are divided over whether the action is as efficient as using interest rates.
