MercoPress. South Atlantic News Agency

Brazil Central Bank lowers benchmark interest rate to 11.50%

Brazil's Central Bank Monetary Policy Committee, Copom, announced Wednesday a half percentage cut in the basic interest rate or Selic, which dropped from 12% to 11.50% on an annual basis.

This is the seventeenth straight time the bank has slashed the rate totaling 8.25 percentage points from 19.75% in September 2005. However the decision which was most expected by financial markets came with some surprise since three of Copom's seven members only favored 25 points cut instead of 50. "Evaluating the perspectives for inflation, the monetary policy committee decided to reduce the overnight rate,'' central bankers said in a statement released in Brasilia after the meeting today. Meantime the Brazilian currency, Real, stands at its strongest exchange rate in almost seven years helping to keep inflation in check. The gain of the Real, which has cut the cost of imported products, has allowed policy makers to maintain the pace of rate cuts as inflation holds below their 2007 inflation target of 4.5%. The Real has more than doubled since October, 2002 and on Wednesday remained unchanged at 1.86 per U.S. dollar. This week's is the second consecutive half-point reduction. Lower import costs and increased corporate investment are helping to contain inflation, according to minutes of the bank's previous meeting. A strong Real eases consumer prices as cheaper imported goods compete with local products. Brazilian consumer prices rose 3.69% in the 12 months through June from 3.18% in the 12 months ended in May, the statistics agency said. The central bank on June 28 cut its 2007 inflation forecast to 3.5% from 3.8%. Imports into South America's biggest economy rose 26% in the year ending July 15 to 57.2 billion US dollars compared with the same period a year earlier, while exports rose 17% to 79.5 billion, according to Trade Ministry.