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UPDATE 2-Brazil's Lula vows economic stability before vote
March 24, 2010 / 2:31 PM / 7 years ago

UPDATE 2-Brazil's Lula vows economic stability before vote

* Return of inflation would hit poorest most-Lula * Lula pledged fiscal discipline in election year * Lula says cabinet shuffle won’t affect economic policies (Adds comments, background and byline)

By Raymond Colitt

BRASILIA, March 24 (Reuters) - Brazil’s President Luiz Inacio Lula da Silva pledged on Wednesday to maintain economic stability by controlling inflation and ensuring fiscal discipline before this year’s national elections.

“We are not going to risk economic stability. It has to be maintained,” Lula said at an event in Brasilia.

Brazil will hold general elections in October, which has caused some analysts to forecast strong government spending and potentially a less stringent monetary policy on hopes of influencing voters minds.

But Lula said his government would ensure budget and inflation control this year.

“The fiscal issue has to be taken very seriously. And inflation has to be controlled because it hits the poor, not the rich,” Lula said.

Last week, the central bank held its benchmark lending rate at 8.75 percent despite growing inflationary pressures.

Consumer prices are expected to rise 5.1 percent in 2010, according to a weekly central bank survey of leading financial institutions published on Monday. That is above the official 4.5 percent inflation target, plus or minus 2 percentage points.

Economic stimulus measures caused the primary budget surplus to fall last year to an eight-year low of 2 percent of gross domestic product. But the government has pledged a primary budget surplus this year of 3.3 percent of GDP, and last week froze 21.8 billion reais ($12.22 billion) of spending from its budget.

A roaring economy is helping to improve tax revenue this year. GDP is expected to grow nearly 6 percent, after shrinking 0.2 percent last year.

Lula also said a cabinet shuffle next week would not affect continuity of government policies. By law, cabinet members wanting to run in the Oct. 3 poll must step down from their current posts by April 3.

“Our sacred pledge is to not stop governing this country because of the elections,” Lula said.

Central bank chief Henrique Meirelles has said he will decide by the end of the month whether to step down and run for public office. The possibility of his departure has raised some concern that there could be a change in monetary policy. (Additional reporting by Fernando Exman; Editing by Elzio Barreto and Jan Paschal)

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