Thursday, September 15, 2005


Central Bank lowers interest rates

Brazil cut basic interest rate for the first time, after 17 months.
The Brazilian Central Bank cut the benchmark Selic lending rate 25 points to 19,5% from a two-year high, 19,75%. The rate reduction, the first in 17 months, follows nine rate increases since September 2004 that stemmed a surge in inflation.
The Brazilian government is forecasting a 3,4% growth in 2005 from a several years high of 4,9% in 2004.
Analysts said that a decline in the annual inflation rate to a 15 month low of 6% allowed the Central Bank to begin reducing the benchmark rate.
Brazil's 19,5% benchmark lending rate is more than double the 9,5% benchmark rate in Mexico and the 3,5% rate in the U.S. Brazil will lower its benchmark rate to 18% by yearend, according to a central bank survey of about 100 economists that was released on September 12.
The interest rate gap between Brazil and other countries has lured money to the country's fixed-income market, sparking a rally in the currency. Brazil's real has gained 25% in the past 12 months, helping slow inflation by reducing the cost of imports.
The Brazilian Central bank has targeted 5,1% inflation this year and 4,5% in 2006.

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