Hit by virus, Brazil cuts interest rate to record low

Agence France-Presse

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Hit by virus, Brazil cuts interest rate to record low


'The current economic environment demands extraordinarily strong monetary stimulus,' says Brazil's central bank

BRASÍLIA, Brazil – Brazil’s central bank slashed its benchmark interest rate by a bigger-than-expected three-quarters of a percentage point on Wednesday, May 6, saying Latin America’s biggest economy needed “extraordinarily strong” measures to fight the devastating impact of the coronavirus pandemic.

The central bank set the Selic rate at a record-low 3%, a more aggressive move than the half-point cut analysts had forecast.

The bank said the decision was made unanimously by its board of governors, and that another cut was likely at their next meeting, on June 17.

Brazil, the epicenter of Latin America’s outbreak with more than 8,500 deaths so far, is reeling from the economic fallout.

The International Monetary Fund is forecasting it will be hit by a painful 5.3% recession this year.

“The current economic environment demands extraordinarily strong monetary stimulus,” the bank said in a statement.

“For its next meeting, depending on the fiscal outlook and economic environment, the [monetary policy] committee is considering one last adjustment, no greater than the current one, to reach the necessary degree of stimulus in reaction to the economic consequences of the COVID-19 pandemic.”

It added, however, that a high degree of uncertainty about how the pandemic will unfold, coupled with “heightened domestic uncertainty” in Brazil, made it difficult to predict its future moves.

The economic pain caused by stay-at-home measures and a sharp drop in exports to China, Brazil’s biggest trading partner, is being exacerbated by political uncertainty.

Far-right President Jair Bolsonaro is entrenched in various clashes with Congress, state and local governments, and the courts.

The tension stems notably from his minimalist approach to the virus, which he has compared to a “little flu,” and his decision last month to fire the chief of the federal police, triggering a potentially explosive probe into whether he was trying to protect himself and his family from ongoing investigations.

It was the 7th straight rate cut since July 2019 from the central bank, which was trying to revive a weak economy even before the pandemic.

The Brazilian real closed at its weakest ever, 5.70 to the dollar. – Rappler.com

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