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Wednesday 28th of April 2010
May 1, 2009    

Brazil central bank cuts interest rates to 10.25%

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by Peter Charalambous

The Brazilian central bank has cut interest rates by 1 percent to 10.25 percent, while the move was widely expected, many investors are disappointed that the reduction was not greater with a 1.5 percent rate cut being mooted.

This was evidence that the central bank has reduced their policy of monetary easing, although the benchmark interest rate has been set to a new low, policymakers have allowed the economy a change to recover given positive signals.

The central bank president Henrique Meirelles has indicated that the risk of the economy contracting has fallen and the rate cut has left room for further manoeuvring if needed.

The economy is showing signs of recovery as December saw 655,000 jobs lost, although companies have recruited 35,000 workers this month.

Despite the expectation that recovery is just around the corner, gross domestic product is still contracting 0.2 percent.

That is why policymakers are still expected to cut interest rates over the next two meetings, as demand is still weak and exports still affected.

Following the announcement of the rate cut, the Brazilian real opened weaker against the US dollar.

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