Brazilian Interest Rate Cut
May 31, 2012
Brazil’s monetary policy committee, COPOM, reduced its key Selic interest rate to 8.5% from 9.0% late Wednesday. Such was the seventh reduction in an easing cycle begun nine months ago from a peak of 12.5%. These seven cuts totaling 400 basis points offset eight increases totaling 375 bps between April 2010 and July 2011, and have depressed Brazil’s interest rate to a record low, eclipsing the trough during the Great Recession. Today’s vote was unanimous, and the 50-basis point size of the move was less than the prior two moves of 75 bps each in April and March.
A statement from COPOM reasserts that the risks to inflation at this time are “limited” and cites disinflationary external price risks. Brazilian CPI inflation stood at 5.1% in April, which is within the 2.5 – 6.5% target range. GDP growth has slowed from 7.5% in 2010 to 2.7% in 2011 and merely 1.4% between 1Q11 and 1Q12. The government has put pressure on bank officials to respond to the weaker growth rate. Unemployment is at 6.2%, and Brazil’s current account deficit equals about 2.6% of GDP. The Brazilian real has dropped over 20% against the dollar during the past 12 months. Brazilian officials first coined the term “currency wars.”
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Brazil, COPOM, Selic Rate
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