Brazil surprises with aggressive rate cut to rescue economy

Reuters

Published Jan 11, 2017 04:12PM ET

Brazil surprises with aggressive rate cut to rescue economy

By Alonso Soto

BRASILIA (Reuters) - Brazil surprised markets with a larger-than-expected interest rate cut on Wednesday, stepping up its monetary easing to revive an economy mired in its worst recession ever.

In a unanimous vote, the central bank's nine-member monetary policy committee, known as Copom, decided to cut its benchmark Selic rate <BRCBMP=ECI> by 75 basis points to 13.00 percent after two straight cuts of 25 basis-points each.

An overwhelming majority of analysts had expected a rate cut of 50 basis points with only a few predicting a more aggressive cut that brought rates to a near two-year low.

The surprise decision could help President Michel Temer breathe new life into the economy amid lingering political tensions, following last year's impeachment of President Dilma Rousseff, and a corruption investigation involving his own party.

In its post-meeting statement, the bank said it had considered a 50 basis points cut but decided to frontload the monetary easing as widespread disinflation and a halting recovery called for more aggressive action.

"The extension of the cycle and possible revisions of the pace of easing will continue to depend on inflation forecasts and expectations," the bank said.

The recession, the worst in Brazilian history, has left millions unemployed and bankrupted hundreds of companies. There has been heavy pressure on central bank chief Ilan Goldfajn to lower rates, which rank among the world's highest.