MercoPress. South Atlantic News Agency

Brazil targets growth and cuts basic rate one full point

Brazilean Central Bank

Brazil's Central bank reduced its benchmark SELIC interest rate a full point to 12.75% on Wednesday, its biggest cut since December 2003. Policy makers slashed the Selic rate by 1 percentage point to its lowest level since March 2007, when Brazil was still enjoying a boom that ended abruptly with the global economic crisis late last year.

Economists surveyed by the bank predicted that it will continue cutting the Selic throughout the year, bringing it to 11.25% by 2010 to revive rapidly slowing growth. Latinamerica's largest economy was expected to expand 4% or more in 2009. But economists surveyed by the bank now forecast 2.5% growth for the year, while some analysts predict an even greater slowdown as the world economic crisis stalls demand for the commodity exports on which Brazil relies. Union members, who protested by the thousands on Sao Paulo's streets ahead of the bank's decision Wednesday, criticized the move as too conservative. Labour leaders were asking a 2 percentage point rate cut to spur lending and production and slow layoffs. "A reduction of 1 percent isn't much," said Artur Henri, head of the Central Workers Congress. One of the nation's top big business lobbies, the National Confederation of Industry, called the cut "rational and pragmatic," the Agencia Estado news service reported. Brazil lost 654,000 jobs in December, more than any month since May 1999, the government admitted this week. Unemployment reached 7.6% in November, and December's jobless rate is due to be announced later this week. The Central bank's monetary policy committee had resisted cutting rates as inflation persisted despite Brazil's slowing growth and given the country's long tradition with spiralling prices. But recent data shows price gains have eased, with inflation now predicted to dip to 4.9% in 2009, according to economists surveyed by the bank. Five of the committee's eight members voted for Wednesday's 1 percentage point cut, while three favoured a reduction of 0.75 percentage points, the bank said in a release.