IMF report to influence Brazil Central Bank decision on rate hike
January 20, 2016, 5:55 am

Brazil recession is deepening, says a new IMF report [Xinhua]

Brazil’s economy fell into recession in the second quarter of last year.

The IMF expects Brazil will stay in recession in 2016.

Central bank governor Alexandre Tombini said the IMF attributed the rapid drop in Brazil’s GDP to “non-economic factors.”

The official results from the Brazilian government will come out in March.

In its latest “World Economic Outlook” released on Tuesday, the IMF revised its projections for Brazil sharply downward from a 1-per cent contraction to a-3.5 per cent contraction this year.

A corruption scandal in state oil firm Petrobras has also weighed on the economy.

According to the report, the “recession caused by political uncertainty and continued repercussions by the Petrobras investigation” would undermine the growth of the economy.

A statement on the Brazilian Central Bank website indicated that the IMF report would play a role in the bank’s decision on whether to raise its benchmark Selic rate from 14.25 per cent.

The damage to the Brazilian economy is predicted to have a knock-on effect on all the Latin American and the Caribbean countries, whose economies are predicted to drop by 0.3 per cent this year and rise by 1.6 per cent in 2017, according to the IMF.

Also on Tuesday, the Fitch ratings agency predicted Brazil’s economic recession would be “deeper and longer” than predicted. It also ruled out a rapid recovery of Brazil’s investment grade rating.

According to Fitch, the Brazilian economy will contract by 2.5 per cent this year due to “continued weaknesses.”

In late 2015, Fitch and Standard & Poor both stripped Brazil of its investment grade rating.

Source: Agencies