Brazil cut its interest rate by three-quarters of a point to a record low, boosting the pace of monetary easing as the coronavirus pandemic shreds inflation pressures and lands a historic blow to Latin America’s largest economy.
The central bank’s board, led by its President Roberto Campos Neto, on Wednesday lowered the Selic to 3% in its seventh straight reduction, as forecast by only eight of 37 economists in a Bloomberg survey. Twenty-eight analysts expected a drop of 50 basis points, while one saw no change.
The board anticipated one ``final monetary adjustment, not larger than this one,'' to conclude its current monetary easing cycle, according to a statement accompanying its decision.
Brazil joins peers from Mexico to the Philippines in pumping more monetary stimulus amid a rapidly worsening outlook. The virus has undercut demand by crushing confidence and also hurt supply by closing factories. Analysts expect the economy posted deflation in April, and that consumer prices will end this year at least half a percentage point below the floor of the target range.
“Since the last meeting in March, the balance of risks deteriorated all around,” Newton Rosa, chief economist at Sul America Investimentos Dtvm, said before the announcement. “In the second quarter, we will probably have our worst GDP reading in history.”
On April 20, Campos Neto underscored a sharp downturn in growth prospects while saying low borrowing costs can still stimulate the economy. Organizations such as the International Monetary Fund expect Brazil’s economy to contract 5.3% as the unemployment rate approaches 15%.
Still, policy makers must also navigate a fresh bout of political tensions which include criminal accusations against President Jair Bolsonaro and the departure of two of his key ministers.
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