Brazil’s Central Bank Cuts Key Lending Rate

With exorbitantly high interest rates strangling South America’s largest economy, Brazil’s central bank heeded the president’s call to lower the country’s key lending rate. The central bank’s Monetary Policy Committee lowered the rate from 49.75% to 42.25%. Most analysts had expected such a relatively modest reduction, rather than a sharp drop. The central bank decision followed a tumultuous day on the Sao Paulo stock exchange. The market dropped nearly 3%, influenced by allegations about a multimillion-dollar overseas bank account involving President Fernando Henrique Cardoso and some of his closest aides. The allegations, which the government dismissed as dirty tricks by political foes, surfaced over the weekend and diverted the nation’s attention from Cardoso’s recently announced fiscal austerity plan. The government hopes the proposed package of new taxes and spending cuts submitted to Congress will qualify Brazil for an IMF rescue package, expected to be announced within the next few days.