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Brazil’s central bank cuts interest rates to record low
BRASILIA, Aug 1, 2019 (BSS/AFP) – Brazil’s central bank slashed interest
rates to a record low on Wednesday in response to the worsening outlook for
Latin America’s biggest economy.
The bank cut its main rate to six percent from the previous historic low
of 6.5 percent, which had been unchanged since March 2018.
The unanimous decision was announced shortly after the US Federal Reserve
made its first interest rate cut in more than a decade.
Brazil’s monetary policymaker had been resisting pressure to reduce
borrowing costs for fear of fanning inflation as President Jair Bolsonaro
struggled to push his signature pension reform bill through Congress.
But the controversial measure cleared a key hurdle earlier this month
after the lower house voted overwhelmingly in favor of the proposed changes.
The plan to introduce a minimum retirement age and increase contributions
over a longer period of time is seen as crucial to Bolsonaro’s ability to
deliver on other promised measures to shake up the economy, which is on the
brink of recession.
The central bank “recognizes that the process of reforms and adjustments
needed in the Brazilian economy has advanced, but emphasizes that the
continuity of this process is essential for the… sustainable recovery of
the economy,” according to a statement explaining its decision.
Adjusting the key Selic rate is seen as one of the few tools Brazil has to
revive growth, given the dire state of its finances.
The International Monetary Fund estimates the country’s public debt to be
88 percent of gross domestic product, one of the largest among its peers.
Brazil has struggled to recover from the devastating 2015-2016 recession
during which the economy shrank nearly seven percent.
Its economy contracted 0.2 percent in the first quarter of 2019 and
economists expect growth of less than one percent for the full year.
The government last week unveiled a plan to inject $11.2 billion into the
economy by allowing workers to withdraw month from a severance fund.
The stimulus is expected to add 2.5 percentage points to GDP per capita
over 10 years as well as create three million jobs.
The central bank’s decision comes as Brazil’s jobless rate fell to 12
percent in the latest three month period, from the previous 12.3 percent, the
national statistics agency said Wednesday.
The number of people who gave up looking for work stabilized at around
4.88 million.
BSS/AFP/HR/0945