Brazil’s central bank cuts interest rate to new low of 6.5 per cent

BRASÍLIA: Brazil’s central bank on Wednesday again slashed its interest rate to a new low, this time setting it at 6.5 per cent, to try to help boost growth in Latin America’s biggest economy.

The cut in the Selic rate of 25 basis points from 6.75 per cent, which met analyst expectations, is the 12th consecutive rate reduction, as Brazil tries to emerge from a stifling two-year recession.

At its last meeting in February, when the central bank cut the rate to 6.75 per cent, it had said it saw the “interruption of the monetary easing process as more appropriate.”

But on Wednesday, it left the door open for another rate cut at its next meeting on May 15-16, saying such a move would be “appropriate.”

Brazil returned to economic growth in 2017, with GDP expanding by a meager one per cent, but the recovery has been slow and uneven.

The country’s inflation rate closed 2017 at 2.95 per cent – the lowest level in 20 years – and in the 12 months to February, the rate stood at 2.84 per cent, below the target of three per cent.

The central bank’s monetary policy committee said Wednesday it “understands that the economic situation prescribes a stimulative monetary policy.”

Brazil could see a major political shift by year’s end, with the presidential election set for October 7.

Current center- right leader Michel Temer has faced major opposition to his plans to make deep cuts to the pension system, the keystone of austerity reforms aimed at bringing discipline to the floundering economy.

The measure is popular among investors, but does not have the votes to pass Congress. Many voters fiercely oppose any reductions in the generous system.

There are also doubts about the chances of any businessfriendly centrist candidate in the elections.

The frontrunner is left-wing ex-president Luiz Inacio Lula da Silva, but he doesn’t even know if he can run.

An appeals court sentenced him to 12 years and one month in prison in January after upholding his conviction for having taken an upscale seaside apartment as a bribe from a construction company involved in Brazil’s massive ‘Car Wash’ corruption scheme.

An appeals court is set to rule on a technical challenge to that ruling on Monday.

The Selic got as high as 14.25 per cent in October 2016, when the central bank was fighting inflation in the midst of the deepest recession in Brazilian history.

Traditionally one of the world’s highest interest rates, its all-time high was 45 per cent, in March 1999. — AFP