Brazil Central Bank Cuts Interest Rate Hoping to Overcome Recession
February 28, 2017
Brazil cut its key interest rate further on Wednesday to try to prop Latin America's biggest economy out of its worst recession in a century. The country's central bank cut the benchmark rate by 0.75 percentage points to 12.25%, still one of the worlds highest.
It was the fourth such cut in a row by the Brazilian Central Bank, as inflation falls but the economy shows few signs of recovering any time soon from two years of decline.
The scale of Wednesday's cut was in line with analysts' expectations, though some had said the bank should cut rates even more sharply, citing a steep decline in inflation.
The 0.75-point cut was “the consensus forecast, although the ideal figure would be 1.0 percentage point,” analyst Fulvio de Andrade at brokerage Walpires in Sao Paulo said ahead of Wednesday's announcement.
“There is room for that cut, which would be positive in terms of what the country needs,” he said adding that big banks were opposed to such a sharp reduction.
Conservative President Michel Temer is trying to push tough public spending reforms through congress to strengthen the country's public finances. But analysts warn his reforms face risks from an unstable political climate and ongoing corruption investigations targeting top politicians.
Temer has low popularity ratings. He took over as president in May to replace Dilma Rousseff, who was later impeached.
Brazil's economy shrank 3.5% in 2015 and an estimated 3.6% last year.
There is also uncertainty over the impact that new US President Donald Trump's policies could have on Latin America. Experts surveyed by the central bank last month forecast the economy would grow by only about 0.5% this year. The bank's own official 2017 growth forecast for the country stands at 0.8%.