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Montevideo, November 19th 2018 - 03:32 UTC

ºBrazil central bank lowers Selic rate to 13.75%; warns about global uncertainty

Thursday, December 1st 2016 - 14:00 UTC
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“The available evidence indicates the pick-up in economic activity may be later and more gradual than previously anticipated,” the central bank said. “The available evidence indicates the pick-up in economic activity may be later and more gradual than previously anticipated,” the central bank said.

Brazil's central bank cut its key interest rate Wednesday for the second month running, as data showed that the recession hitting Latin America's largest economy continued into the third quarter. The central bank lowered the benchmark Selic rate by a quarter of a percentage point, to 13.75% -- still one of the world's highest.

 “The available evidence indicates the pick-up in economic activity may be later and more gradual than previously anticipated,” the bank said. Earlier, the state statistics office said the ailing economy shrank a further 0.8% last quarter -- its seventh consecutive contraction.

Brazil's economy is in its deepest recession for decades and the country's credit rating has been reduced to junk status by all three main international rating agencies.

President Michel Temer, who took over this year after the impeachment of populist leader Dilma Rousseff, has vowed to introduce strong austerity measures.

The market hopes the reforms will get the economy back on the rails, but the bank remains caught between wanting to stimulate economic growth and trying to dampen double-digit inflation. Inflation dropped to 7.87% in October from 8.48% in September, continuing its downward progress. But it is still far above the target of 4.5%.

Last month the bank made its first interest rate cut in three years, lowering the Selic by 0.25 points to 14%. Economists say its room to maneuver is limited. The new 0.25-point cut was in line with analysts' expectations.

The bank said external factors were making it difficult to rein in inflation. A long-feared and now apparently imminent interest rate hike in the United States would strengthen the dollar against the Brazilian real.

And billionaire Donald Trump's victory in the US presidential election has unleashed “uncertainty about the direction of economic policy,” the bank said. Also restraining the bank is uncertainty about the future of Temer's austerity plan.

Temer faces a huge task to wrestle Brazil back into the black. The economy shrank 3.8% in 2015 and market estimates are pointing to another slip, of almost 3.5% in 2016, with weak growth returning next year.

Categories: Economy, Brazil.

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