Brazil’s central bank on Wednesday cut its benchmark interest rate by 75 basis points to 9.75 percent, following the announcement that the country’s GDP grew a mere 2.7 percent last year.
“Continuing with the process of adjusting monetary conditions, the monetary policy committee decided to reduce the rate to 9.75 percent” from 10.5 percent, the central bank said in a brief statement.
The cut of 75 basis points reflected some analyst expectations that given the release on Tuesday of GDP figures for Latin America’s largest economy, the rate cut would be a significant one.
“The market was expecting another half point cut of the base rate, but with Tuesday’s release of the 2011 GDP figures which shows lower than expected growth, it would not be surprising if the central bank decided on a more aggressive cut,” said Fernando Barbosa Filho, an analyst at the private Getulio Vargas Foundation.
The government had come under pressure from labor unions and industrialists to trim rates to stimulate the economy.
Last August, the Central Bank reversed course following a series of rate hikes to clamp down on inflation and it has since brought down its base rate from 12.5 percent then to the current 9.75 percent. However, the rates are still among the highest in the world.
Analysts fear that the new rate cut will fuel inflation, which reached 6.5 percent last year.
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