Brazil: strong rate cuts ahead because of recession, indicate Central bank minutes

Sunday, December 11th 2016 - 21:16 UTC

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The bank last cut its benchmark Selic rate by 25 basis points to 13.75%, maintaining the slow pace of rate cuts to secure inflation eases to the 4.5% target

In the minutes, the bank said some members argued for a more aggressive rate cut given the slowdown in inflation and advances in approving fiscal measures

Fears of a slower economic recovery in Brazil could pave the way for heftier rate cuts, the central bank said clearly signaling more aggressive monetary easing ahead as the country's worst recession in memory worsens.

Two weeks ago, the bank cut its benchmark Selic rate by 25 basis points to 13.75%, maintaining the slow pace of rate cuts to secure inflation eases to the 4.5% of the official target next year.

In the minutes of that meeting, the bank said some members argued for a more aggressive rate cut given the slowdown in inflation and advances in approving fiscal measures in Congress.

All members, however, agreed that the recovery has disappointed as the recession threatens to stretch into a third year.

“The palpable risk that a timely recovery of activity does not materialize should allow for the intensification of the pace of monetary easing,” the bank added.

By acknowledging that the economy could take longer to recover the central bank clearly signaled a heftier rate cut is warranted at its Jan 11 meeting.

Categories: Politics, Brazil.

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ChrisR
Had this bunch cut the rates further and earlier many companies would have taken up the challenge of expanding the market.

Dumb, stupid, finance and government people in SA always think when things are going badly they need to 'recover' lost tax income by putting taxes and interest rates up!

That will work - NOT.
Dec 12th, 2016 - 01:31 pm 0
Jack Bauer
@ChrisR
It's general consensus that increasing interest rates takes money out of the market, reducing spending, disencouraging price hikes and supposedly keeping the cost of living in check, and inflation down, provided the Central Bank doesn't print money to pay the government's bills...
Also, many prominent economists (in the private financial sector) seem to agree on one thing : each reduction of 1% in the SELIC (prime) rate, generates up to 0.8 % inflation in the subsequent quarters, therefore one cannot ignore the consequences of a quick reduction in the interest rate. The high interest rate on the other hand, has the nefarious effect of the government paying out heavy chunks of its revenue to the banks, in the form of interest ; Brazil’s Central Bank also has to consider the US prime rate, and how that’ll behave after Trump takes over…unfortunately, the price of the dollar regulates just about everything in Brazil, in one way or the other. Another thing to be remembered : differently to the Fed, whose job it is to contain inflation and stimulate economic growth, the Brazilian Central has only one mandate - to control inflation…so, in a perverse way, it’s doing its job. One of the negative effects of a quick reduction in the interest rate is the built-in inflationary tax , which chews up income and makes savings worthless. Summarizing, the reforms the government is currently trying to pass, are essential for Brazil to get its finances back on track. Nothing less. At least so far, they haven't increased taxes, which, in a recession makes no sense anyway..
Dec 12th, 2016 - 07:45 pm 0
:o))
The Central Bank “minutes”, hours, days are already doomed!
Dec 16th, 2016 - 12:17 pm 0

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