Brazilian Central Bank cuts rate to historic low

BRASILIA - Agence France – Presse

Brazil’s Central Bank President Alexandre Tombini is seen in this file photo. REUTERS photo

Brazil’s central bank on Oct. 10 slashed its interest rate for the 10th time since August last year, to a record low of 7.25 percent, in a bid to stimulate the sluggish economy.

The bank’s monetary policy committee Copom, which announced the quarter-point reduction after the market closed, said the decision was made given inflationary risks, the domestic economy and global economic uncertainty.

Late last month, the central bank lowered its forecast for Brazil’s economic growth in 2012 from 2.5 percent to a measly 1.6 percent, but is counting on that number to pick up next year.

2 percent GDP target

The government, which has launched a series of stimulus measures this year, is banking on two percent GDP growth this year -- down from an earlier forecast of three percent -- while market analysts are forecasting a 1.5 percent rise.

The world’s sixth largest economy showed clear signs of a slowdown in the first half of this year, expanding only 0.6 percent compared with the previous quarter.

The Brazilian economy grew a paltry 2.7 percent last year, down from a strong 7.5 percent in 2010.

The central bank launched its rate cut strategy in August 2011, when the interest rate stood at a historic high of 12.5 percent and inflation, at 7.2 percent, exceeded the government’s target.

Brazil’s inflation rate over the past 12 months stands at 5.28 percent, driven by rising food prices.

Analysts expect Brazil to close the year with an inflation rate of 5.2 percent, lower than the 6.5 percent registered in 2011 but higher than the official target of 4.5 percent.