A Fifth Interest Rate Cut For Brazil

July 22, 2009

The committee on monetary policy, also know as COPOM, cut its target Selic short-term interest rate by an as-forecast 50 basis points to 8.75%.  This was the fifth reduction this year and the smallest.  The first, third and fourth cutss on January 21, April 29 and June 10 were 100-bp moves, and the second on March 11th was a 150-bp reduction.  The cumulative decline has been 500 basis points and compares to a 1.1 percentage point reduction in consumer price inflation to 4.8% in June from 5.9% last December. Inflation is expected to trend further downward.  Although real GDP did not contract as sharply in the first quarter as such had in 4Q08, it was sufficiently negative to back a shift to a significantly more accommodative credit policy.  GDP decreased 3.3% at a seasonally adjusted annual rate and 1.8% from the first quarter of 2008.  High nominal and real interest rates have supported the Brazilian real sufficiently to enable the central bank to rebuild reserves.  The next scheduled rate announcement will be on September 2nd.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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