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Brazil likely to speed up rate cuts to fight crisis

Conservative President Michel Temer is trying to push tough public spending reforms through congress to strengthen Brazil’s public finances © AFP/File / ANDRESSA ANHOLETE

Brasília, Brazil, Jan 10 – Analysts expect Brazil’s central bank to speed up the pace of interest rate cuts on Wednesday as Latin America’s biggest economy struggles to escape its worst recession in a century.

If they are right, it will be the third month running that the Bank of Brazil cuts its benchmark interest rate to try to spur activity in hard-up Brazil.

Analyst Ignacio Crespo of Guide Investments in Sao Paulo forecast the bank would announce a further 0.50 percentage point cut after it closes its policy meeting on Wednesday.

That would bring the rate to 13.25 percent — still one of the world’s highest.

Inflation is already on the decline according to official data, but Brazil’s giant economy is still not showing signs of recovering soon.

Conservative President Michel Temer is trying to push tough public spending reforms through congress to strengthen the public finances.

But analysts warn his reforms face risks from an unstable political climate and ongoing corruption investigations targeting top politicians.

Temer has low popularity ratings. He took over as president in May to replace Dilma Rousseff who was later impeached.

There is also uncertainty over the impact that US President-elect Donald Trump’s policies could have on Latin America after he takes office on January 20.

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Experts surveyed by the Brazilian central bank last month forecast the economy would grow only by about 0.5 percent this year.

It has shrunk by nearly four percent over each of the past two years.

Some analysts have forecast a rate cut of up to 0.75 percent points.

“The latest economic data were quite weak and inflation is still falling, so it makes sense to accelerate the pace of rate cuts, but not that much,” Crespo said.

In a survey by economic newspaper Valor, 32 out of 38 experts forecast a 0.50 percentage point cut.

“A greater cut would indicate that the bank thinks the fiscal problem, which is Brazil’s greatest problem, and the structural reforms which are under way in Congress, are on the right track,” Crespo said.

“And I do not think that is the case.”

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