April 20 (Bloomberg) -- Brazil will keep its 4.5 percent inflation target for 2005, resisting pressure to ease the target to help allow for faster economic growth, a spokesman for Budget and Planning Minister Guido Mantega said.

Newspapers Folha de S. Paulo and O Estado de S. Paulo reported today that President Luiz Inacio Lula da Silva wants the National Monetary Council to push up the 2005 target to allow the central bank to cut interest rates faster. Carlos Alberto Azevedo, Mantega's spokesman, said in a telephone interview that Mantega and the rest of the council members have no plans to raise the target at their next meeting in June.

Lula, 58, is facing mounting pressure from legislators, labor unions and business executives to speed up the recovery in South America's biggest economy after gross domestic product shrank last year for the first time since 1992. Yields on interest-rate futures rose today as traders such as Rodrigo Boulos at Banco Santos SA in Sao Paulo said they're concerned Lula may cave into demands for a higher inflation target.

``There is absolutely nothing positive in talk about a weaker inflation target,'' said Boulos, head trader at Santos, Brazil's sixth-largest non-government bank by assets.

Future Yields

Inflation slowed to 6 percent in the 12 months through March from 9.3 percent in December and a seven-year high of 17.2 percent in May. The government targets inflation of 5.5 percent for this year.

The overnight interest-rate futures contract for Jan. 3 settlement, the most-traded interest-rate future on Sao Paulo's BM&F commodities and futures exchange, rose 6 basis points, or 0.06 percentage point, to 15.43 percent.

The central bank has lowered the benchmark overnight rate 10.5 percentage points since June to a three-year low of 16 percent. Still, Lula supporters including his Vice President Jose Alencar have called for faster rate reductions. Lula's spending cuts -- aimed in part at slowing inflation -- have also cost him support in congress: Liberal Party senators pulled out of the coalition last week.

While Mantega said the monetary council isn't considering a change to the inflation target, National Integration Minister Ciro Gomes said this morning that officials are presenting Lula a proposal to raise the target.

``The level of inflation in the short term can, eventually, leave less room in our effort to boost employment and income,'' Gomes told TV Globo's Bom Dia Brasil.

A government report today suggested Brazil's recovery is strengthening after the interest-rate cuts: Retail sales rose for a third month in February, halting 12 months of declines. Sales increased 5.1 percent after rising 6 percent in January.

To contact the reporter on this story: Guillermo Parra-Bernal in Brasilia at gparra@bloomberg.net

Last Updated: April 20, 2004 15:06 EDT