Brazil’s central bank to cut rates as economy reels from virus

Brazil’s central bank will likely cut its interest rate by 50 basis points today as measures to counter the COVID-19

brazil economy central bank

Photo: Rodrigo Capote/Bloomberg

Brazil’s central bank will likely cut its interest rate by 50 basis points today as measures to counter the COVID-19 pandemic continue to devastate Latin America’s largest economy.

The expected reduction, the seventh since July, is intended to pump money into the struggling economy. Brazil’s unemployment rate rose from 11% to 12.2% during the first quarter of 2020 and manufacturing activity tumbled—the IMF projects a contraction of 5% or more this year.

Brazil is the epicentre of the Latin America’s COVID-19 outbreak with more than 100,000 confirmed cases and 7,000 deaths as of May 4, numbers that likely underrepresent the severity of the outbreak due to the country’s poor testing capabilities. President Jair Bolsonaro has repeatedly downplayed the threat of the virus and refused to implement a stay-at-home rule. Meanwhile, the president faces substantial political pressure after popular cabinet member and former judge Sergio Moro resigned last week over the president’s alleged misconduct and a federal police investigation into Bolsonaro’s sons.

Expect today’s interest rate cut to do little to stem the pandemic’s ravaging of the Brazilian economy. The government already freed up existing funds to provide for social programs, but the expected contraction may push the government to take expansionary measures currently being resisted by the economy ministry.

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