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The Globe and Mail

Brazil drops interest rate to 9% in sixth straight cut since August

A Brazilian flag is waved from a balcony, Oct. 29, 2006.


Brazil cut its benchmark interest rate to 9 per cent as expected on Wednesday, dropping it to a near historic low that may spell the end of the central bank's aggressive easing cycle to revive Latin America's largest economy.

The bank's monetary policy committee, known as Copom, voted unanimously for a hefty 75 basis-point rate cut, its sixth straight cut since August.

Brazil's economy has been flirting with recession since the second half of last year, and President Dilma Rousseff has expressed hopes that lower rates will help spur consumer spending and spark a return to healthy growth.

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However, persistent pressure on prices has limited the bank's room for maneuver. Most market analysts agree the bank will likely now take a break after trimming a total of 3.5 percentage points off the Selic rate, and keep the rate steady at 9 per cent for the rest of the year.

"The Copom considers that at present, the risks to inflation trajectory remain limited," the bank said in its rate decision statement.

The short statement gave no explicit guidance on what the bank's next move will be.

Central bank president Alexandre Tombini said this month the bank will likely cut the Selic rate to just above record lows of 8.75 per cent and then keep the rate there for some time. Investors took those comments to mean the rate would fall to 9 per cent and stay there.

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