The Central Bank of Brazil has cut interest rates by 0.5% after a five to two vote held by the rate setting committee. The unexpected cut has been explained as the result of the worsening circumstances of the global economy.
Previously this year, Brazil’s Central Bank has increase interest rates five times with the aim of tackling inflation which currently stands at 6.9%. This makes the recent cut even more unusual and some are suspicious over whether it was a result of pressure from politicians as, a few days a go several politicians made aware that they felt interest rates should be cut.
However, the bank has claimed that the reasons behind their actions include the high levels of debt held by other countries which are also showing poor economic growth, and fears that this could have negative effects on Brazil.
There have been some analysts who have come forward to say that the decision is a bad one which has been made as a result of insistence from politicians and that will ultimately lead to an increase in inflation and damage to the banks reputation.
In addition, Mauricio Rosal from Raymond Jones has claimed the interest cuts are hasty and ahead of time.
It has also been suggested by Neil Shearing, one of the economists at Capital Economics that the interested rates will now continue to be cut. He said that considering that Brazil has the highest interest rates in the world there is room to reduce them.
The cut in interest rates is the latest in a number of measures taken by the Brazilian government this year to boost the economy. In addition to the many interest rate rises imposed, it was also announced earlier this year that there would be £19B worth of spending cuts applied. Lending from banks was also limited due to new rules regarding their reserve which meant they had to keep more money back.
The measures do seem to be working though as Brazil’s economy grew by more that 7% last year and it has been predicted it will grow more than 5% again this year.
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