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Brazil cuts key policy rate to record low; India's GDP expansion slowest since 2003

June 1, 2012

Brazil’s central bank cut its benchmark lending rate to a historic low yesterday as part of efforts to revive growth in Latin America’s largest economy. As forecast by 62 of 70 analysts surveyed by Bloomberg, the central bank lowered the Selic rate by 50 basis points to 8.5%, a smaller cut than the 75 basis point-reductions seen at the last two meetings of the monetary policy committee (Copom).

Explaining its decision in a brief statement, Copom remarked: “At present, there remain limited risks to the trajectory of inflation. The committee further notes that given the fragility of the global economy, the contribution from the external sector is disinflationary.” The central bank has cut rates seven times from a high last August of 12.5%, citing the deteriorating global outlook for growth. Brazil’s economic growth rate faltered from 7.5% in 2010 to 2.7% last year and in recent months has been crawling at an annualised rate of a little more than 1%. The government of the world’s sixth-largest nation has taken measures to try to jumpstart activity, most recently unveiling a seri-es of tax breaks and other incentives to clear some of the backlog in the auto sector.

Separately, India’s economy expanded at the weakest pace in nine years last quarter, hurt by a slowdown in investment. Gross domestic product expanded 5.3% in Q1 2012, down from a 6.1% growth pace in the previous quarter, the Central Statistical Office in New Delhi announced Thursday. The median of 31 economist estimates in a Bloomberg poll was for a 6.1% gain. Compared with the same period last year, GDP rose by 6.5% (consensus: 6.7%, Q4 2011: 8.4% y-o-y). The rupee fell to record low of 56.5150 against the US dollar Thursday. Reserve Bank of India governor Duvvuri Subbarao pledged last week to take steps as needed to curb swings in the currency.