Brazil Central Bank Cuts Interest Rate 50bps to 11.00%

The Banco Central Do Brasil reduced the Selic interest rate by another 50 basis points to 11.00% from 11.50% previously.  In its statement, Brazil’s Central Bank Monetary Policy Committee (Copom) said [translated]: “Continuing the process of adjusting monetary conditions, the Committee decided unanimously to reduce the Selic rate to 11.00% pa, without bias. The Monetary Policy Committee believes that the timely mitigate the effects coming from a more restrictive global environment, a moderate adjustment in the level of the base rate is consistent with the scenario of convergence of inflation to the target in 2012.

Brazil’s central bank previously cut the rate by 50 basis points in October and September, after raising the Selic rate by 25 basis points to 12.50% at the June Copom meeting this year, which at the time amounted to total tightening for the year of 175 basis points (now net tightening of 25bps).  Brazil reported an annual inflation rate of 7.31% in September, compared to 7.23% in August, 6.87% in July, 6.71% in June, and 6.55% in May, and just outside the official inflation target of 4.50% +/-2% (2.5-6.5%).  


The Brazilian government is forecasting economic growth this year of 4.5-5%, compared to GDP growth of 7.5% during 2010.  The “BRIC” emerging market economy grew 0.8% q/q in the June quarter (1.3% in March), placing annual growth at 3.1% (4.2% in Q1).  The Brazilian Real (BRL) has weakened about 12% against the US dollar so far this year, while the USDBRL exchange rate last traded around 1.81

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