Brazil expected to cut interest rate by another 1%


BRASÍLIA: Brazil’s central bank is likely to slash its key interest rate on Wednesday by a percentage point to 8.25 percent, the eighth consecutive cut as the country slowly exits a painful recession, analysts say.

The one percentage point fall in the base Selic rate predicted by markets would match a previous cut in July.
The decision will be announced after the latest August inflation figures, due out earlier Wednesday.

Markets expect 3.38 percent price rises for this year, meaning the government will easily beat its target of 4.5 percent inflation. That’s light years from the 10.67 percent inflation in 2015 and 6.2 percent at the end of 2016.

The downward inflationary trend has freed the bank to relax rates and try to help spur an economy only just starting to show signs of creeping out of its worst recession on record. The Selic has been lowered from 14.25 percent in October last year, with the pace of cuts accelerating.

“I think the cut will be a percentage point. The tendency until the end of the year is for cuts to keep accompanying the revival of the economy until reaching a level at around seven or 7.5 percent,” said Walpires Corretora analyst Fabricio Stagliano.

Market expectations polled by the central bank’s Focus weekly magazine point to the Selic ending the year at 7.25 percent.

Last week the government welcomed an unexpected fall in stubbornly high unemployment from 13 to 12.8 percent, although much of the growth was from low quality jobs.

Center-right President Michel Temer, who is battling a criminal charge of corruption, is pushing austerity cuts, looser labor laws and a big privatization program that he says will revive the sickly economy after more than a decade of leftist rule.

In the first quarter of this year, gross domestic product rose one percent, ending eight consecutive quarters of shrinkage. There was growth of 0.2 percent in the second quarter.

Analysts believe this week that Brazil will wind up 2017 with 0.5 percent GDP growth, up from the 0.39 percent that had been forecast before the second quarter statistics came in last week. The consensus is that Latin America’s biggest economy will climb back to two percent growth in 2018.


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