Wednesday, August 29, 2012

Brazil cuts key rate to 7.50%, cautious about next move

    The central bank of Brazil cut its benchmark Selic rate by 50 basis points to a record low 7.50 percent, as widely expected, but said it would be extremely cautious with further rate cuts.
    "Considering the cumulative and lagged effects of policy actions implemented so far, which partly reflected the ongoing recovery in economic activity, the Committee believes that, if the prospective scenario were to include a further adjustment in monetary conditions, this movement should be conducted with maximum parsimony," Banco Central do Brasil said in a statement in Portuguese following a meeting of its Copom monetary policy committee.
    The bank added that the decision to reduce the benchmark rate was unanimous and it did not include a bias toward future policy decisions.
    Brazil's central bank has been cutting rates since August 2011 when the bank started its campaign of easing rates from a recent high of 12.50 percent to revive growth.

    Financial markets had recently become confident that the central bank would cut rates, but that further rate cuts would be unlikely as the economy gradually starts to improve following government stimulus measures.
    Brazil's GDP rose 0.2 percent in the first quarter from the fourth quarter for an annual rate of 0.8 percent. But this is sharply down from 2011's 2.7 percent growth and 2010's 7.5 percent growth.
    The inflation rate rose to 5.2 percent in July, up from 4.9 percent in June. The central bank targets inflation of 4.5 percent.


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