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31 May 2012

Brazil cuts interest rates to record low

Unanimous decision is part of President Dilma's main priorities for the Brazilian economy

Brazil's Central Bank cut interest rates on Wednesday for the seventh straight time to a record low 8.5%. This is the lowest rate the Brazilian economy has had, since Selic started being used as the measure for the monetary policy committee, in 1999. The statement released by the Central Bank utilizes the same justification of the previous statement from April. "At this moment, Copom believes that the risks to the inflation outlook remain limited", attests the document. The board decision has been unanimous. Reducing the interest rates has been one of the top priorities of President Dilma Rousseff's government. During her first month as a president, in January 2011, Selic reached 11,25%.

Interest rates cut wave

Besides the sequential reduction of the country's main interest rate, the government has also been engaged in promoting rates cuts directly to the consumers, through the public and private banks. Since April, most of the Brazilian banks have launched lower interest rates for consumers and micro companies line of credit. The measure is aimed at strengthening the economy, by stimulation production and consumption, including the real estate sector. With higher interest rates, firms have the tendency to invest less, due to the fact that it is expensive to borrow capital for production. Likewise, consumer spending is also reduced, since payment plans are more expensive - and Brazilians traditionally pay for their goods in several months, being subject to the impact of higher interest rates. Lower interest rates, in contrast, stimulate the production and consumption, improving Gross Domestic Product and the economy as a whole.