Brazil cuts benchmark rate to new low

Brazil cuts benchmark rate to new low

Corporate & Sovereign Strategy Regulation Brazil Latin America Coronavirus

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Brazil's Central Bank said it cut the benchmark Selic interest rate by 25 basis points to 2% on Wednesday to help combat the "biggest global economic downturn since the Great Depression" caused by the COVID-19 pandemic.

The bank's monetary policy committee, or Copom, voted unanimously to lower the Selic due to continued uncertainty about economic growth due to the coronavirus and the "expected cooling" of emergency aid programs intended to bolster the flagging economy.

"The sectors most directly affected by the social distance remain depressed, despite the re-composition of the income generated by the government programs." the committee said in a press release.

Copom previously cut the Selic by 75 basis points to 2.25% in June and said at the time future reductions would be smaller.

The committee reaffirmed the statement stating the "remaining space for the use of monetary policy, if any, must be small" and "any future adjustments to the current degree of stimulus should occur with additional gradualism" to avoid stoking inflation.

Copom said in the release the inflation level could be influenced in either direction: either by idleness in the economy producing inflation below expectations or fiscal policies designed to respond to the pandemic stoking aggregate demand and pushing up inflation.

Copom lowered its inflation expectations once again to 1.9% in 2020 and 3% in 2021, compared to forecasts of 2% in 2020 and 3.2% in 2021 after its meeting in June.

"Despite an asymmetry in its risk balance, the Copom does not foresee reductions in the degree of monetary stimulus," the Copom said.