Brazil: Central Bank Lowers Rates Despite High Inflation

ForexNewsNow.com (New York) – The Brazilian Central Bank surprised markets by cutting its key interest rate by 50 basis points to 12% on Wednesday evening, interrupting a upward trend started in early 2011.

Financial experts and analysts forecasted a disruption of rate hikes by the Central Bank,  which had reached 175 basis points in total since January. But analysts were unanimous that the central bank would opt for stability by maintaining the rate at 12.5% instead of 12%.

The graphic below underlines how inflation has been rising since January 2008 in Brazil.

It seems that the subprime mortgage crisis of 2008 allowed the country to lower its inflation rate but an important acceleration can be noticed since the end of 2010.

Brazil has steadily increased its interest rates this year in order to combat inflation. Brazilian inflation is expected to reach 6.3% in 2011, much higher than the 4.5% targeted by Brazilian President Dilma Rousseff’s government.

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