Brazil slashes interest rates
January 12, 2017, 11:41 am

Rampant inflation, which once frustrated the Rousseff administration and her successor Michel Temer, now appears to be falling to levels desired by the Central Bank [Xinhua]

The latest cut follows two consecutive cuts of 25 basis points each, and was more than markets had been predicting.

The Central Bank said it would increase monetary easing to help the ailing Brazilian economy which is going through its worst ever recession.

The lowered interest rate is expected to boost consumer demand by offering cheaper credit and encourage foreign investors to inject funds in the country.

The Central Bank is also hoping that Brazil’s runaway inflation rate continues to fall. Last year, it hit 10.7 per cent but has lately started to decline coming close to the desired 4.5 – 6.5 per cent rate range.

Official government data released on Thursday showed that consumer prices in 2016 rose by just 6.29 per cent, well within the Central Bank’s range.

Forecasts currently hold that the inflation rate will fall close to the 4 per cent rage by the end of 2017, likely signalling further interest rate cuts from the Central Bank.

This is all welcome news to President Michel Temer who has been urging further austerity measures to fight a stubborn recession which has left investment in the country reeling over the past two years.

In December, the Senate voted for a controversial constitutional amendment – passed by 53 votes for and 16 against – which will freeze the government’s social spending at the rate of inflation for the next 20 years.

Temer is currently facing an uphill battle.

In early December, economists downgraded their forecasts for growth next year yet again, saying it will likely expand by less than one per cent.

The economy in 2016 contracted by about three per cent as the worst recession in nearly a century continues to dash hopes of a recovery.

Brazil’s economy will probably grow less than 1 per cent in 2017, economists agree, with some arguing it won’t go higher than 0.5 per cent GDP growth.

State statistics firm IBGE also announced that the economy contracted for the seventh consecutive time – 0.8 per cent in Q3 from the prior quarter.

The agricultural and industrial sectors were performing worse than last year, IBGE said. Exports fell 2.8 per cent, while imports dropped 3.1 per cent in third quarter.

The BRICS Post with inputs from Agencies