High rates give Brazil growing pains In Brazil, the signs in shopping centres urge customers to buy everything from watches to fridges in instalments sem juros, or without interest. But most people know the interest is still there, built into the price, and it is there in abundance in a country whose real interest rates are the highest of any large economy. Indeed, interest rates are so exorbitant in Brazil - the cost of a bank overdraft reached 188 per cent last year - that President Dilma Rousseff has started a vocal campaign to force banks to lower them as part of moves to revive a sputtering economy. IN Americas Economy "For those who have money it is a different matter but for the majority, we can't do anything except suffer the high rates," says Oféria Rita Trevisan, a lawyer shopping in a mall in central São Paulo's Avenida Paulista. The crusade by Ms Rousseff and her ministers against high rates comes as the central bank has been doing its part by steadily lowering the "Selic," the government benchmark interest rate for the economy. In the latest move, the central bank lowered the Selic to 9 per cent on Wednesday night from a peak last year of 12.5 per cent and signalled that further cuts could be on the way. The Selic is now close to its 15-year low of 8.75 per cent. We have to dismantle some barriers to our sustainable growth. These barriers can be summarised very simply as the need to bring our interest rates and spreads down to international levels," Ms Rousseff recently told a meeting with industrialists. The government, concerned over a fall in economic growth from 7.5 per cent in 2010 to 2.7 per cent last year, has pressured state banks into lowering their lending rates. Now private banks are following suit. Foreign lenders HSBC and Santander have lowered some rates while local institutions Itaú and Bradesco are expected to do the same. The central bank has said the lower rates are justified by subdued inflation, which has fallen to levels nearer to 5 per cent after nearly breaching the official target range of 4.5 per cent plus or minus 2 percentage points last December. In its decision on Wednesday night, the central bank also pointed at a weak global economic outlook as another reason for keeping rates low. Economists are split, however, on whether merely forcing rates lower is a sustainable strategy. Brazil`s high interest rates are the result of its past history of runaway inflation, ever-expanding government spending - Brazil's state equals in size that of a western European country but without the same efficiency or service delivery - and other factors, such as indexation of wages to inflation and gross domestic product growth. "It is an important thing to do," says Sebastian Briozzo, analyst with Standard & Poor's, on the policy of trying to reduce interest rates. As long as you contain some of the fiscal issues. Economists also say the structure of Brazil's economy, with its record low unemployment, generous annual pay increases and low rates of investment, is geared towards creating demand rather than supply. A shortage of infrastructure in Brazil means that whenever the economy starts growing fast, inflation makes a comeback, creating the need to increase interest rates again to contain prices. "The problem is infrastructure," says Marcelo Salomon, economist with Barclays Capital in New York. Fixed capital infrastructure, human capital - nothing is built to have growth of more than 4 to 4.5 per cent. The final problem the government faces in lowering rates is a political one. Brazil's popular savings scheme, known as poupança, has a tax-free guaranteed rate of return of 6 per cent. If the Selic falls much below 9 per cent, investors will stop buying government bonds and switch to poupanças - a result that would not please Ms Rousseff.