Brazil Cuts Interest Rates for 14th Time in a Row, to 12.75%

Brazilian currency, the real Brazil's Central Bank on Wednesday, March 7, cut the basic reference interest rate Selic by 25 points to 12.75%, in line with market expectations and government promises of a more flexible monetary policy.

The Monetary Policy Committee, Copom, said in a release that the decision was "unanimous" and the reduction is on target with a more flexible monetary policy process.

This was the fourteenth consecutive cut since the Central Bank begun to relax its tight approach to monetary policy in September 2005.

Market analysts anticipate that the Central Bank will continue with its policy of gradually cutting interest rates, which are among the highest in the world given the fact that inflation in Brazil has averaged 4.5 to 5.5% during the first four years of President Lula.

Copom is scheduled to meet again in mid April.

The loosening of monetary policy was an implicit promise of Lula for his second four-year mandate with the purpose of spurring the economy which since 2002 has grown at 2.6% annually, trailing the rest of Latinamerica.

In the first four years of Lula's administration an extremely orthodox monetary approach to combat inflation, appreciate the Brazilian currency and improve the debt/GDP ratio had a constricting impact in the country's growth in spite of record exports pushed by the global commodities boom.

For his second mandate the Brazilian president announced a gigantic public works investment plan, to be matched by the private sector, to ensure the Brazilian economy averages an expansion of at least 4.5% annually.

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