Thursday, March 8, 2012

Brazil Central Bank Drops Rate 75bps to 9.75%

The Banco Central Do Brasil slashed the Selic interest rate by a greater than expected 75 basis points to 9.75% from 10.50% previously.  In its statement, Brazil's Central Bank Monetary Policy Committee (Copom) said [translated]: "Continuing the process of adjusting monetary conditions, the Committee decided to reduce the Selic rate to 9.75% pa, without bias, by five votes to two votes for the reduction of the Selic rate by 0.5 pp."

 Brazil's central bank previously cut the rate by 50 basis points in January, November, October and September, after raising the Selic rate by 25 basis points to 12.50% at the June Copom meeting last year, which at the time amounted to total tightening for the year of 175 basis points.  Brazil reported an annual inflation rate of 6.5% in December, compared to 7.31% in September, 7.23% in August, 6.87% in July, 6.71% in June, and 6.55% in May, and just outside the official inflation target of 4.50% +/-2% (2.5-6.5%).  

The "BRIC" emerging market economy grew 0.3% q/q in the December quarter (0.0% in September, 0.7% in June, 0.8% in March), placing annual growth at 1.4% (2.1% in Q3, 3.1% in Q2, and 4.2% in Q1).  The Brazilian Real (BRL) has weakened about 6% against the US dollar over the past year, while the USDBRL exchange rate last traded around 1.77

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