Brazil opts for deeper rate cut to stoke recovery

March 08, 2012, Thursday/ 15:06:00

Brazil slashed interest rates by a larger-than-expected 75 basis points on Wednesday, stepping up its battle to revive struggling industries that threaten to derail the recovery of Latin America's largest economy.

In its boldest move since August, when it surprised markets and began the current round of cuts, the central bank lowered its benchmark Selic lending rate to 9.75 percent from 10.50 percent in a split decision. Two of the bank's seven directors wanted to lower the rate by half a percentage point for the fifth straight meeting. It was only the second time on record that Brazil has cut the Selic below 10 percent, taking borrowing costs to their lowest level in nearly two years.

Directors made the decision hours after data showed industrial output fell nearly three times more than economists had expected, the latest indicator to suggest Brazil's boom is fizzling. Central bank chief Alexandre Tombini is treading a fine line by trying to bolster economic growth without rekindling inflation, the highest year-end level in seven years.

By accelerating the pace of interest rate cuts, President Dilma Rousseff's administration hopes to shield Brazil's recovery from a strong local currency that economists and business leaders say is crippling its industrial base.

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