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Brazil’s Benchmark Interest Rate the Lowest in 5 Years

For the eighth time running Brazil’s Central Bank on Wednesday, May 31, cut the basic Selic rate to 15.25% from 15.75%, the lowest level since March 2001.

With inflation steadily under control Brazil’s Central Bank has been lowering interest rates since last September in an attempt to boost South America’s largest economy, which only expanded 2.3% last year.

According to official statistics the Brazilian economy grew 1.4% in the first quarter of 2006 compared to the last quarter of 2005, and 3.4% over the same quarter a year ago.

Inflation in Brazil seems to be slowing down and heading for the government’s target of 4.5% in 2006.

Finance Minister Guido Mantega is forecasting the economy will expand 4.5% this year although the markets are more cautious and inclined to a range of 3.5 to 4%.

However in a brief statement the Brazilian bank said it will "accompany the evolution of the macroeconomic outlook until its next meeting, to then define its next steps". Next meeting is scheduled July 18/19.

But in spite of Mantega’s optimism and the picking up of the economy market analysts in São Paulo anticipate, as in the rest of the world, that monetary policy will much depend on the US Federal Reserve next steps because if "there’s more tightening for the US dollar, rate cuts will have to adapt".

Nevertheless declining interest rates and a better performance of the economy have an additional positive side for President Lula da Silva and his re-election bid next October, although not yet announced but taken as granted by the political system and business community.

Mercopress – www.mercopress.com

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