Brazilian Central Bank may curb the interest rate by 0.5 % for the fifth consecutive month this November (2006) after reducing the rate to 13.75 % on October 18 2006, as per Tendencias Consultoria- a consultancy.
According to economists, the bank may even reduce it further to a low of 10 % by 2007 to fuel economic growth as inflation continues to slow down.
Policy makers had voted to cut down the lending rate, which ended at 13.75 %, as predicted by 23 economists of 25 surveyed by the Bloomberg. The rate has come down by 6 % since September 2005.
Nathan Blanche of Tendencias Consultoria expects a 0.5 % cut in November & a 0.25 % cut in early 2007. Blanche expects the central bank to pause for some months to see the result of those reductions on economic growth.
James Barrineau of Alliance Bernstein doesn't see much growth at present & expects the central bank to aggressively cut down the interest rates as expected inflation rates are below target & the previous reductions didn't see much growth as expected by policy makers.
Brazil's economy expanded by 1.2 % in Q2 2006, the slowest of all three quarters after a 3.3 % growth in Q1 2006 & a 2.3 % increase last year (2005). A recent weekly survey of around 100 economists by Central Bank estimated a growth of 3 % this year.
Annual inflation slowed down to 3.7 % in September, as per IPCA, from 3.7 % in August. Consumer prices, as per central bank survey, will increase by 3 % in 2006 & 4.2 % in 2007, below 4.5 % inflation target set by the bank for 2006-2008.
"Brazil's lending rates are still quite high. To spur economic growth, rates must decline to reach a competitive level", said an analyst at RNCOS.
Industrial output in Brazil increased to 3.2 % in August 2006, compared to August 2005, but declined from a 3.5 % rise in July 2006.
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