Economy

Brazil slashes benchmark interest rate to a record low

The new rate of 3.75% is half a percentage point lower than the previous one.

Brazilian Central Bank

Brazil cut its benchmark interest rate by half a percentage point to a record low in a clear effort to halt the economic downturn caused by the coronavirus crisis. The Brazilian Central Bank’s monetary committee (Copom) decided, unanimously, to reduce the Selic (the benchmark rate of the economy) to 3.75%, half a percentage point lower than the previous 4.25%. This is the sixth consecutive rate cut in a row.

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The move follows similar decisions to cut rates by the central banks of the United States, Europe, Japan, Australia, Canada, Chile and others. The idea is to support economic activity facing a sharp deceleration, given the series of quarantines and social isolation measures worldwide.

The door was left open for further cuts. The monetary authority wrote: “The Copom reiterates that the economic situation asks for stimulating monetary policy, that is, with interest rates below the structural rate.”

Local stock markets

Ibovespa, the benchmark index for the largest stock market in Latin America, slid 10.35% to 66,894 points. The trading day was very tense and triggered another interruption by circuit breaker, both on Bovespa and in the U.S. market. According to an analysis by Modalmais, Brazil, being more liquid than most emerging countries, suffers more due to the need for quick exits. In the last month, Bovespa already had six episodes of circuit breaker, equalling the period of the global financial crisis in 2008.

“In the world and also in Brazil, shopping malls and other leisure spaces are being shut down, in principle until the beginning of April, which will require a huge relief effort for small and medium-sized companies”, reads the report.