Brazil’s central bank cuts interest rate amid economic considerations
The Central Bank of Brazil has reduced the country’s basic interest rate by 0.50 percentage points to 13.25% annually, the first decrease in nearly three years since September 2020.
The decision follows pressure from the progressive leader, Luiz Inácio Lula da Silva, who, since taking his third term in office in January, has been urging the bank to reduce the cost of money in Brazil to enable economic growth.
The Central Bank acted in its fifth meeting of the year, explaining in a statement that the improvement in the inflationary scenario provided the confidence necessary to initiate a gradual cycle of monetary easing.
This reduction aligns Brazil with Chile as the first in Latin America to begin reducing money costs amid global inflation.
Brazil’s Central Bank maintained the basic interest rate at 13.75% annually, its highest level in almost seven years, for over a year, justifying it as necessary to combat inflation.
However, Brazil has been recording low inflation levels in recent months, with a deflation of 0.8% in June and a decline in the annual inflation rate from 12.13% last April to 3.16%, its lowest record in almost three years.
In 2022, Brazil finished with an inflation rate of 5.79%, a figure lower than 2021 but higher than the Central Bank’s target for the year.
Economists forecast the rate will fall to 4.84% in 2023.
The government’s concern is that high interest rates could further slow the Brazilian economy, which grew 5.0% in 2021 and 2.9% in 2022, and is expected to expand only 2.5% in 2023.
President Lula had previously accused the Central Bank of attempting to sabotage the country’s economy, expressing frustration over the “world’s highest real interest rate.”
The recent cut in interest rates is seen as aligning monetary policy with the ongoing stabilization of the economy, including falling inflation and unemployment.
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