Brazil Slashes Key Rate By 75 Bps

Brazil’s central bank reduced its interest rate for the third straight session on Wednesday as the economy is expected to remain in recession.

The monetary policy committee decided to slash its Selic rate by 75 basis points to 13.00 percent from 13.75 percent. The bank was expected to cut the rate by 50 basis points.

The bank had reduced the rates in December and October. The reduction in October was the first such move in about four years.

There were two main reasons for the larger rate cut, Neil Shearing, an economist at Capital Economics, said.

The first is the weakness in incoming data. Industrial production and retail sales were not enough to prevent another fall in GDP in the fourth quarter, he noted. The second is the decline in inflation to 6.3 percent in December.

The bank forecast inflation to drop to 4 percent this year and to 3.4 percent in 2018.

The policy will ultimately be loosened by more than the markets expect, Shearing said. The economist expects the Selic rate to fall to at least 10 percent by the end of the year.

The material has been provided by InstaForex Company – www.instaforex.com

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