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Brazil set to cut interest rate to new record low : analysts

29 august 2012, 14:34
0
Photo courtesy of blog.freehomerefi.com
Photo courtesy of blog.freehomerefi.com
Brazil's central bank is set this week to announce its ninth interest rate cut to a record low of 7.5 percent, in a bid to revive sluggish economic growth, AFP reports citing analysts.

The bank's monetary policy committee (Copom) is expected to announce the half-percentage point reduction Wednesday after the market closes.

The rate-cutting policy, which began exactly a year ago, aims to stimulate the economy at a time when it is suffering from China's economic slowdown and the dragging US recovery.

The government is banking on GDP growth of three percent this year while market analysts are forecasting a rise of only 1.7 percent.

"We expect Copom to cut the basic rate by another 50 basis points to a new record low of 7.5 percent," the investment bank Goldman Sachs said in a report released Monday.

Dozens of financial analysts consulted weekly by the central bank concurred.

"Today the central bank's major concern is not inflation but the level of economic activity," said Felipe Queiroz, an analyst at the Brazilian rating agency Austin Rating.

Goldman Sachs meanwhile said Wednesday's expected cut could be the last in the cycle that began last August, given that inflation is rising.

"In addition, the central bank is increasingly confident about an economic uptick in the second half of 2012, due to the recent monetary easing policy and the increase in tax incentives," it added.

Robert Wood, a Brazil analyst for the Economist Intelligence Unit, believes rising consumer prices "will not prevent the central bank from cutting rates another 50 basis points".

The latest official data indicated that the Brazilian economy is showing early signs of recovery, he noted.

"This will not be enough to raise GDP growth to two percent in 2012, but the economy is ready for 4.2 percent expansion in 2013," he added.

Queiroz meanwhile expected inflation to close the year around five percent, higher than the official target of 4.5 percent, attributing the rise in large part to the higher international commodity prices.

The world's sixth largest economy showed clear signs of a slowdown in the first half of this year, expanding only 0.2 percent compared with the previous quarter.

Official GDP figures for the second half of 2012 are to be released Friday.

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

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