After Another Cut Brazil Still Has Interests 3% Higher than Any Country

Brazilian monetary authorities hope the 11 will be the number that will do the trick. After ten consecutive cuts in the Selic – Brazil’s benchmark lending rate – without a visible improvement in the economy, the Brazilian Central Bank’s Monetary Policy Committee (Copom) has once again lowered the rate by 0.5% from 14.25% to 13.75%.

The cuts started in September of last year and since then interests have fallen a full 6%. At that first reduction in September the Selic lowered from 19.75% to 19.5%.

There was no surprise. The market was expecting this reduction, according to a report released earlier this week by Brazil’s Central Bank.

Despite the new cut, however, Brazil is still the world champion in high interest rates. Discounted the projected inflation for the next 12 months, the country will still have real overnight interbank rates of 9.3% a year.

Turkey, the second in the list of countries with the steepest interest rates, has a real rate of 6.2%. So, Brazil would need to cut more than 3% just to get rid of its number one position in the ranking.

Copom will still have a final meeting this year on November 28 when their members are expected to lower the Selic another 0.25%.

According to Getúlio Vargas Foundation’s (FGV) economist Salomão Quadros, a larger reduction in the Selic at this time, just 11 days before the presidential election might have been misinterpreted  putting the Central Bank’s reputation at risk.

"The Central Bank has already given proof of independence and is not going to run the risk of losing this reputation," said Quadros in a interview to Reuters.

As for inflation, experts are betting Brazil won’t exceed 3% this year and 4.2% in 2007. The official inflation target for 2006 is 4.5% with a tolerance margin of plus or minus two points.

Analysts also don’t fear any pressure on prices due to a heated economy. In the second quarter the country’s GDP was 1.2%. The Brazilian government has reduced its growth forecast from 4% to 3.5% for the year. But economists are expecting more like 3% or less.



You May Also Like

New Braskem: a Brazilian Petrochemical Giant Is Born

Petrobras and Odebrecht, two Brazilian companies announced the purchase of Unipar’s share of the ...

Big Surplus Keeps Dollar Down in Brazil

The Central Bank’s weekly survey of market analysts and financial institutions (known as the ...

Bibi Ferreira: Brazil Theater’s Grande Dame Sings Piaf in New York, Again

Though heralded as the grand dame of the Brazilian theater, actress, singer and director ...

Brazilian Indians: What FUNAI Won’t Tell You

Tours with visits to Indian villages are common in the Brazilian Amazon. Within the ...

World Crisis Putting a Brake on Brazil’s Cattle Industry

The plans in Brazil are to increase the number of cattle in feedlots by ...


By Brazzil Magazine Showbiz Peeled to the Soul She’s been called Leoa do Norte ...

Brazil’s Zero Hunger Is Running Low on Gas and So Is Lula

Of Brazil’s 180 million people, an estimated 46 million go to bed hungry every ...

São Paulo Governor Still Clear Favorite to Be Brazil’s Next President

The governor of São Paulo, José Serra, from the opposition PSDB (Party of the ...

Brazil to Change Rules to Get More Control of Oil Reserves

Brazilian president Luiz Inácio Lula da Silva will present a bill aimed at increasing ...