Central bank of Brazil will ease monetary policy, taking advantage of slowing inflation to support economic recovery from the deepest recession in history. Many economists expressed the opinion that the bank will cut its main interest rate by 100 basis points to 11.25%, thus the interest rate will reach the lowest level in three years.
Central bank of Brazil is under pressure from economists and politicians for more boldly lowering interest rates. Speakers of the bank explained that the aim is to moderate interest rate cuts since there are now two cuts of 75 basis points.
Lowering inflation amid modest expectations and low economic activity opens the door to a policy of enhanced cash facilities. Some experts believe that the bank will cut rates twice by 100 basis points in a bid to cope with low credit rating and rising unemployment.
The economic recovery is causing big headaches for President of Brazil Michel Temer. The GDP contracted by almost 8% for two years, while inflation fell to 4.5%, which is in the middle of the target range of the central bank, after the 2015 the consumer price growth was double-digit rate.
Michel Temer will try to restore confidence in the office by reducing the target for inflation in 2019, as forecasts are that it will not rise.
The lower inflation allows the governor of the Brazilian Central Bank to pay attention to the growth of the economy. The Bank cut rates in each of their last four meetings. The economists predict that interest rates will fall to 8.5% by the end of the year.
The following declines, however, will depend on the adoption of the reforms made by the president, especially his intention for a comprehensive review of the pension system, which meets resistance in Congress.
GDP is expected to Brazil scored slight growth of 0.4%. The forecasts are encouraging for 2018, when economic growth is expected to accelerate to 2.5%.