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Brazil central bank cuts interest rate

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Brazilian President Jair Bolsonaro delivers a speech in Brasilia on July. AFP

Brazil central bank cuts interest rate

Brazil's central bank cut its benchmark interest rate on Wednesday to a new record low of 4.25 per cent, seeking to boost what it called the “gradual recovery” of Latin America’s largest economy.

The quarter-point cut, in line with market expectations, was decided unanimously by the bank’s monetary policy committee, it said in a statement.

It was the fifth straight decrease since July 2019. But the bank indicated the loosening cycle was coming to an end.

“The Monetary Policy Committee understands that the current stage of the economic cycle demands caution,” it said.

“The Committee sees interrupting the monetary loosening cycle as appropriate. It emphasises that its next steps will continue to depend on how economic activity evolves, the risk outlook, and inflation expectations and projections.”

The Brazilian economy is slowly bouncing back from its worst-ever recession, which ended in 2017 after two years. The government is currently forecasting growth of 2.4 per cent this year, double the estimate for 2019.

But although far-right President Jair Bolsonaro’s government has won plaudits from the business world for pushing through long-sought economic reforms, clouds linger.

The deadly new coronavirus outbreak in China – Brazil’s top trading partner – has taken a hit on leading Brazilian exporters, including state oil company Petrobras and mining firm Vale.

Vale’s stock-market value has plunged by around $5.5 billion since January 23.

And statistics released on Tuesday showed Brazil’s industrial output fell by 1.1 per cent last year, after two years of growth.

Brazil’s inflation rate came in at 4.31 per cent for 2019.

Analysts polled by the central bank are forecasting inflation of 3.4 per cent this year, on the lower side of the bank’s target range of four per cent plus or minus 1.5 percentage points.

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