Severino Cavalcanti, president of Brazil's lower house of congress, said he wants to strip the central bank of its power to independently set interest rates.

Cavalcanti said in a statement distributed in Brasilia that he will set up a special commission today to analyze the bank's eight increases in the benchmark lending rate since September and to “propose solutions, including, if possible, removing the power of the central bank's board to independently raise rates.” He said he will meet with Vice President Jose Alencar tomorrow to discuss the proposal.

“The increase in interest rates has been imposed in a draconian fashion,” Cavalcanti, 74, said in the statement. “This situation can't continue as it is.”

Cristiano Noronha, a political analyst with Brasilia-based Arko Advice, said Cavalcanti's proposal, which goes against the government's push to pass legislation that would strengthen the bank's autonomy, will likely fail to garner support in congress.

Jose Janene, the lower house leader of Cavalcanti's Progressive Party, later sought to clarify Cavalcanti's statement, saying the party only wants central bank President Henrique Meirelles to appear before congress after policy meetings to testify on what led the bank to make its rate decision. The Progressive Party is part of President Luiz Inacio Lula da Silva's coalition.

“We don't want to interfere in the central bank's board decisions,” Janene told reporters in congress in Brasilia. “We just want to receive an explanation as we're the echo of our country.”

Central bankers have raised the benchmark overnight rate 3.5 percentage points in the past eight months to 19.5 percent, the highest since October 2003, in a bid to bring the annual inflation rate down to its 5.1 percent year-end target. Inflation accelerated to 7.5 percent in the 12 months through March, fueled in part by the fastest economic expansion in a decade.

(From Bloomberg, April 27, 2005)

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