Brasília (AFP) – Brazil’s central bank cut its benchmark interest rate Wednesday for a third straight time, shrugging off inflationary pressures in a positive development for President Luiz Inacio Lula da Silva as he seeks reelection. The so-called Selic rate, one of the highest in the world, was reduced as expected by a quarter point to 14.25 percent, the bank said in a statement.
Copom, the bank’s Monetary Policy Committee, said it was acting with “calm and caution” in light of inflation projections that are drifting up from the official target. Since returning to power in 2023, leftist Lula has advocated for lower interest rates as a way to stimulate South America’s largest economy. The central bank began a cycle of rate cuts in March after nearly two years of maintaining the status quo, but grew cautious as war shook the Middle East and energy prices soared.
Global inflationary pressure has persisted even as foes Washington and Tehran announced a deal aimed at ending the conflict, and on Wednesday the Copom cited an “uncertain” scenario due to the “unclear” terms of the agreement. High interest rates make credit more expensive and discourage consumption and investment, thereby curbing inflation.
But Lula’s government has maintained pressure to lower the benchmark rate, and the quarter-point cut in the Selic was expected by most financial institutions in a Valor Economico survey. Since the war began in late February, year-on-year inflation in Brazil has increased steadily, and the rising cost of living will be a primary issue in the campaign ahead of October’s presidential election. Polls show Lula leading his main rival Flavio Bolsonaro, a conservative senator and son of far-right former president Jair Bolsonaro.
© 2024 AFP
