Brazil's central bank cuts interest rates to record low

The International Monetary Fund estimates Brazil's public debt to be 88 per cent of gross domestic product, one of the largest among its peers. — Reuters pic
The International Monetary Fund estimates Brazil's public debt to be 88 per cent of gross domestic product, one of the largest among its peers. — Reuters pic

BRASILIA, Aug 1 ― Brazil's central bank slashed interest rates to a record low yesterday in response to the worsening outlook for Latin America's biggest economy.

The bank cut its main rate to six per cent from the previous historic low of 6.5 per cent, 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 “recognises that the process of reforms and adjustments needed in the Brazilian economy has advanced, but emphasises 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 per cent 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 per cent.

Its economy contracted 0.2 per cent in the first quarter of 2019 and economists expect growth of less than one per cent for the full year.

The government last week unveiled a plan to inject US$11.2 billion (RM46.4 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 per cent in the latest three month period, from the previous 12.3 per cent, the national statistics agency said yesterday.

The number of people who gave up looking for work stabilised at around 4.88 million. ― AFP

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