Brazil Has Never Seen Its Key Interest Rate So Low: 10.25%

Brazilian real The Central Bank of Brazil cut its benchmark interest rate Selic for a third-straight time to a record low of 10.25% as it seeks to prevent the sluggish economy from contracting further this year.

Monetary policy makers voted unanimously to lower the rate to 10.25% from 11.25%. The move follows cuts of 150 basis points last month and 100 basis points in January. A basis point equals 0.01 percentage point.

"Assessing the macroeconomic scenario and with a view to extend the process of monetary easing, the Copom unanimously decided to lower the Selic rate to 10.25 percent, without bias," policy makers said in their statement without any further elaboration.

The Brazilian Central Bank is seeking to revive growth as record job losses and plunging output threaten the government's 2% growth target, a goal already cut from 4% at the start of the year. In the last quarter of 2008, Brazil's economy shrank 3.6% and private economists are forecasting the economy to contract by 0.5% this year.

"Today's cut, despite being smaller than the past one, reflects the central bank's aggressive monetary policy and is consistent with the economic disruption" said Roberto Padovani, chief economist at Banco WestLB in Sao Paulo.

Slower inflation will allow policy makers to keep cutting the Selic rate at their June meeting, economists say. The benchmark interest rate will drop to 9.25% by year-end, according to the median estimate in April 24th Central Bank survey of about 100 economists.

Brazil's broadest measure of inflation, the so-called IGP-M price index, fell 0.15% this month, the Getúlio Vargas Foundation said Wednesday. The index, which measures consumer, construction and wholesale prices, has dropped in three of the first four months of 2009.

The Central Bank targets inflation of 4.5% with a leeway of plus or minus two percentage points.

Just last week, the government's IBGE statistics agency said the jobless rate stood at 9% in March, equal to about 141,000 people, up from 8.5% in February and the highest level since September 2007. There are currently 2.1 million people seeking work.

Earlier, the IBGE said the country's industrial production plunged 17% in March, compared to March 2008 – the worst decline for Latinamerica's largest economy since record-keeping began in 1991.

Mercopress

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