Dhaka, Bangladesh
Brazil forecast to cut interest rate to new low of 6.25pc

Brazil forecast to cut interest rate to new low of 6.25pc

BRASILIA, May 16: Brazil’s Central Bank was forecast to drop its interest rate Wednesday to a historic 6.25 percent low, as President Michel Temer declared victory in his bid to end a brutal recession, reports AFP. A new 25 basis points cut in the key Selic rate from 6.5 percent would follow up on the Central Bank’s sustained campaign to stimulate a still tepid recovery from Brazil’s worst recession on record. Back in October 2016, when the bank was fending off high inflation, the rate had climbed all the way to 14.25 percent. However, analysts predicted that a cut on Wednesday would be the last in the cycle of 13 consecutive lower rates as the bank looks to potential new inflationary threats. Temer used the second anniversary of his government—which took power after the still controversial impeachment of Dilma Rousseff—to declare that Brazil was in good economic health again. “We are responsible and proud for having taking the country out of its worst recession in history,” he said Tuesday. Temer, who has single-digit approval ratings, admitted that his market-orientated reforms and austerity measures had “cost us our popularity,” but insisted that he’d done the right thing. “The results are there, the numbers are good. We did in two years what the others didn’t do for 20,” he said. Uncertain times lie ahead, however. Analysts say the Central Bank is eyeing inflationary pressure from possible rate hikes in the United States, the increase in oil prices and devaluation of the national currency, the real. On Tuesday, the dollar traded at 3.66 real, a two year high. The real has lost 10 percent of its value against the dollar since January. Another factor spooking the bank is the absence so far of a strongly pro-markets presidential candidate for elections due in October. Further rate cuts are therefore unlikely. However, with April inflation at an unexpectedly low 0.22 percent—or 2.76 percent over 12 months, which is well below the three percent target— the bank can afford one more, Jason Vieira, at Infinity Asset consultants, said. “It will give a push to the macroeconomic situation,” he said. Brazil returned to economic growth in 2017, with GDP expanding by a meager one percent, but the recovery has been slow and uneven. The government expects three percent GDP growth this year, but market forecasts have fallen to 2.51 percent, the weekly Central Bank survey shows. Unemployment remains stubbornly high at 13.1 percent.

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