In order to prop the slowing Brazilian economy and meet a 4% growth target in 2009, Brazil's government will cut taxes by 8.4 billion reais (approximately US$ 3.6 billion), Finance Minister Guido Mantega and Central Bank president Henrique Meirelles announced Thursday, December 11, in Brazilian capital BrasÀlia.
The stimulus plan will also allow the Central bank to use international reserves to help Brazilian corporations access to credit thus easing pressure on the weakening local currency.
The tax cuts on personal income, consumer loans and automobiles will help sustain economic growth as demand for commodity exports dries up, Mantega said.
"If companies have the courage to keep investments and avoid layoffs, we'll be able to meet our growth target," Mantega told reporters in Brasilia.
Brazil's economic expansion may slow by more than half next year to the lowest level since 2003 as the first crisis since World War II to affect the US, Europe, Japan and China at the same time looms over Latin America's biggest economy.
Analysts expect Brazil's economic growth to fall to 2.5% in 2009 from 5.2% this year, according to a Central bank survey published earlier this week.
Demand for loans made through the banking system may total US$ 10 billion and be limited to 125% of the amount of debt maturing through the end of 2009, Central Bank President Henrique Meirelles said.
"The measure takes pressure from the credit market in real and increases the availability of US dollars in the Brazilian currency market" Meirelles said at the press conference with Mantega.
The Real jumped 3.4% on Thursday, the most in two weeks, to 2.3659 per US dollar. The Brazilian currency since September has lost 32% of its value against the greenback.