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Wednesday, 18 September, 2002, 20:01 GMT 21:01 UK
Brazil leaves interest rates unchanged
Rio, Brazil
Brazil's new government will have to meet targets
Brazil's Central Bank has said it will leave interest rates unchanged at 18% until after the forthcoming presidential election, following fresh concerns over the country's economy.

The bank said the outlook was still one of "volatility and uncertainty" as the left-wing candidate Luiz Inacio Lula de Silva surged ahead in opinion polls.

Despite a $30.4bn loan from the International Monetary Fund in August, Brazil is still struggling under the weight of its $260bn debt.

Analysts say the threat of a war with Iraq and the slump in global stock markets, has heightened fears for the country's economy.

Neutral stance

The Central Bank has changed from an 'easing bias' to a 'neutral bias' on interest rates, which means no more changes are possible before the elections on 4 October.

Brazil sets its interest rates in line with inflation targets, but these inflation limits have been overtaken in the last two years as the country's currency value plummeted.

Investors have continued to shun the Brazilian market because of uncertainty over the result of the election.

Although opposition candidates have agreed to stick to IMF policies if they are elected, analysts say market is still nervous.

"We are clearly in the eye of the hurricane and I don't see chances of a cut before the election is decided," said Monica Bauer at MB Associados.

The IMF paid only $3bn of the loan immediately, with the rest set to be given in four payments over 2003.

But this depends on the Brazilian government keeping up its economic policies, including maintaining a 3.75% budget surplus.


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