Brazil’s central bank cut borrowing costs by half a point for a second straight meeting, as growth in Latin America’s biggest economy slows amid Europe’s sovereign-debt crisis.
The bank’s board, led by President Alexandre Tombini, voted unanimously to reduce the benchmark Selic rate to 11.5 percent from 12 percent, as forecast by 61 of 68 analysts surveyed by Bloomberg. Five analysts forecast a 0.75-point reduction, and two expected a full-point cut.
The central bank “understands that to mitigate in a timely way effects coming from a more restrictive global environment, a moderate adjustment in the level of the basic rate of interest is consistent with the scenario of the convergence of inflation to the target in 2012,” policy makers said in their statement accompanying their decision.
Policy makers are betting that slowing global demand will offset the stimulus provided by lower borrowing costs and curb the fastest inflation in six years, said Gustavo Rangel, chief Brazil economist for ING Financial Markets. Across Latin America, no other central bank has lowered rates since Colombia did 18 months ago, and in the Group of 20 nations only Turkey has also cut its benchmark rate in response to the global crisis.
“This cycle is basically a gamble,” Rangel, who accurately predicted today’s cut, said by phone from New York before the rate decision. “Countries like Chile and Peru, which would experience a deeper disinflationary impact should the crisis worsen, are still not doing anything.”
External Focus
The central bank raised rates five times this year as near record-low unemployment and a credit boom fueled inflation that in April topped the 6.5 percent upper limit of the bank’s target range. Inflation continued to accelerate even as concerns over a global slowdown led policy makers to reverse course in August; prices in September rose 7.31 percent from a year ago.
Traders expect the bank to cut rates by an additional 1.25 percentage point by April, according to Bloomberg estimates based on interest rate futures yields.
Inflation expectations have jumped since the August rate cut, and economists now expect Brazil to miss its inflation target this year for the first time since 2003, according to an Oct. 14 central bank survey. Economists forecast consumer prices will rise 5.61 percent next year, up from of 5.2 percent at the end of August.
