03/12/2009 09h31

BC changes position and cuts rate by 1.5 points

Folha de S. Paulo – 03/12/2009

In view of the strong retraction of the Brazilian economy in the last quarter of last year, the Central Bank decided to increase the rhythm in the fall of the rates. The Copom (Central Bank Monetary Policy Committee) reduced, yesterday, the Selic rate by 1.5 percent point fixing it at 11.25% a year. It was the greatest fall since November 2003. With that, the rate returns to the level it was last April, before the BC (Central Bank) started the last cycle of increase of the Selic rate. It is the lowest level since the creation of the rate, in 1986. The Copom will meet again at the end of next month, and analysts expect a new cut. The decision of the eight members of the Copom was unanimous and it was expected by the market. In the announcement that informed the decision, the BC avoids giving tips on what the future of the Selic rate will be. According to the text, the Copom "will continue the evolution of the prospective trajectory for inflation until its next meeting, taking into account the magnitude and the rapidity of the adjustment of the basic interest rate already implemented and its cumulative effects, in order for then define the next steps. It is a retraction in relation to what was made in the January Copom meeting. At the time, when the interest fell one point percent, the announcement affirmed the BC was already "carrying out, forthwith, an important part of the movement of the basic interest rate". The purpose of the phrase was to indicate the BC did not want to make a major adjustment in the Selic rate and that the interest would hardly fall more than one point percent in a single meeting. Under strong pressure inside and outside the Government, and one day after the announcement of fall of 3.6% of the GDP in the fourth quarter of 2008 in relation to the third, the institution went back on its position yesterday and intensified the cuts. The fall of the Selic rate can stimulate the recovery of the credit, one of the sectors most affected by the crisis. In order for that to happen, however, there are some conditions. Making the credit cheaper does not depend only on the BC, but also on the willingness of the banks in passing on the fall in the Selic rate to the interest charged on their clients. Some of the largest banks of the country, public and private, have already announced cuts in their rates yesterday.