Brazil’s Central Bank Cuts Benchmark Rate

In a surprisingly strong show of confidence in prospects for recovery after Brazil’s devaluation and near economic collapse earlier this year, the country’s central bank cut its benchmark interest rate to 34% from 39.5%, the third cut since the rate peaked at 44% in January. The bank also noted an “easing bias,” which means that it could lower rates further before the meeting May 19 of the bank’s monetary policy committee. Luis Fernando Figueiredo, bank director of monetary policy, said the action was prompted by relatively low inflation and the recent increase in foreign credit and direct investment in Brazil. While cautioning that Brazil is not yet out of danger, analysts praised the government’s fiscal reforms since January as a positive move in trimming the country’s huge budget deficit, which could total 10% of economic output this year. Brazil’s currency weakened slightly, closing at 1.675 reals to the dollar, off from 1.665 on Tuesday. The leading stock index, the Bovespa, closed at 11,305 points, up 0.78% for the day. Stock markets had closed when the rate reduction was announced, so observers expect a positive response from investors today.