Brazil in unexpected interest rate cut

| September 1, 2011
”Brazil

Brazil’s central bank has cut the country’s key interest rate to 12% from 12.5% – a move which surprised economists.

However, the bank said there had been a “substantial deterioration” in the outlook for the global economy and that was its reason for the rate cut.

One analyst said the rate cut is a “huge mistake” and said the bank could lose credibility as a result.

The bank has lifted interest rates five times this year in a bid to tame rising inflation – something which many central banks are doing throughout the world.

Brazil, which is one of the world’s fastest growing economies, recently admitted that inflation is spiralling out of control.

Earlier this week, the central bank said inflation will rise to 6.31% by the end of the year – well above the 4.5% midpoint of the bank’s target.

Meanwhile, Brazil‘s economy, which is the largest in Latin America, grew more than 7% in 2010 and is forecast to expand between 4.5% and 5% in 2011.

Former President Luiz Inacio Lula da Silva, said Brazil will become the world’s fifth largest economy by 2016.

Finally, the country’s unemployment rate fell to an all-time low of 6% in July.

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