Originally created 06/18/04

Brazil keeps base interest rate at 16 percent



BRASILIA, Brazil -- Rising oil prices and concerns over a resurgence of inflation and a possible interest rate hike by the U.S. Federal Reserve led Brazil's central bank on Wednesday to maintain the country's base interest rates at 16 percent.

The decision had been widely expected. In a Dow Jones Newswires survey of 19 economists all said the central bank would be forced to hold the rate unchanged.

The central bank has been using a policy of high interest rates to help reduce Brazilian inflation, which surged to 9.3 percent in 2003 but which is now running at about 5 percent.

Inflationary expectations have risen amid currency depreciation brought on by elevated oil prices and concerns about a possible rate hike by the U.S. Federal Reserve.

The country's currency, the real, has lost nearly 6 percent against the dollar since the beginning of May, prompting inflation forecasts to rise steadily. Year-end projections for the country's consumer price index rose this month to 6.6 percent from 6.1 percent four weeks ago.

The government has set a year-end inflation target of 5.5 percent with a 2.5 percentage-point margin of tolerance.