Brazil seeks to boost its economy with a new historical rate cut

The Central Bank of Brazil (BCB) will cut its basic rate of 5.5% again on Wednesday to boost the economy in the Caribbean country

A new 5% cut is added to the twelve already made in Brazil in the last 3 years. According to experts, they bet on a re-boost of the economy in the Caribbean country which take off is delayed despite the progress of pro-market reforms. According to the expectations of the analysts, they bet that the Monetary Political Committee (Copom) of the Central Bank of Brazil approves another cut of the Selic rate to 4% in order to help the country’s financial boost.

Inflation, on the other hand, should close 2019 at 3.29%, below the center of the BCB target, of 4.25% (with a margin of 1.5 percentage points up or down), and reach to 3.6% in 2020, according to the Focus weekly survey conducted by the BCB.

Short term effects

Mauro Rochlin, professor at the Getulio Vargas Foundation (FGV) of Rio de Janeiro, says that despite the scenario he remains “optimistic … The numbers will begin to take effect shortly. Brazil can grow again 3%” already in 2020. He also explains that “the cycle of cuts is relatively recent, but with such rate levels, institutional investors will have to start looking for higher risk investments. Fixed income yields little.”

Given this scenario, analysts do not glimpse great risks for the Brazilian economy in the current turmoil that many countries in South America are experiencing. However, they fear the impact that the Bolsonaro government may generate, in the middle of controversies with allies and institutions.

For Mauro Rochlin, “the president represents the greatest risk, from the point of view of foreign investors,” who instead put all their faith in Paulo Guedes.

K. Villarroel

Source: finanzasdigital

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