Brazil’s central bank has once again cut its benchmark Selic interest rate as it hopes sharp fiscal reforms will see the country out of one of its worst ever recessions.
The bank said this week it could cut the interest rate by 75 basis points to 12.25 per cent, the second such cut in a row, as part of efforts to improve Brazil’s economy – one which was expected to have contracted by more than three per cent last year.
In positive news for people keeping their eye on Brazil’s forestry investment landscape, the central bank explained in a note outlining its reasons for the cut: “The evidence suggests a gradual recovery in economic activity throughout 2017.”
Brazil’s interest rates are very high for a major economy and cuts to the rate are seen as crucial if the country is to recover from one of its deepest recessions.
The central bank’s rate-cutting strategy began in October after inflation began dropping from a high of 10.7 per cent early last year to end 2016 at 6.29 per cent.
“The committee understands that the convergence of inflation to the target of 4.5 per cent…is compatible with the process of monetary easing,” the central bank said.
The Financial Times reported that a weekly survey by the bank of economists found they predicted inflation would be 4.43 per cent by the end of this year and 4.5 per cent next year.
“The cut was in line with expectations given the country’s floundering economy and rapidly easing price pressures. Looking forward, larger cuts could be in the pipeline if incoming economic data remain weak and if the government continues to make progress with fiscal reforms. Given the poor outlook for the economy, our panel of analysts sees the SELIC rate ending 2017 in single-digits, where it has not been since 2013,” said Angela Bouzanis, a senior economist at FocusEconomics.