Brazil central bank cuts benchmark rate for fifth time in a row

Brazil’s central bank on Wednesday cut its benchmark interest rate for the fifth straight time, in a move president Luiz Inacio Lula da Silva hopes will boost the economy as he seeks re-election in October.

The bank lowered the so-called Selic rate, one of the highest in the world, from 14% to 13.75% on the same day the US Federal Reserve raised interest rates for the first time since 2023.

The cut is part of a cycle that began in March after almost two years of rate hikes. It had been widely expected.

It was announced hours after the US Fed raised rates by 25 basis points to between 3.75% and 4.00%, defying President Donald Trump’s call for cuts ahead of November’s mid-term elections.

Lula is seeking a non-consecutive fourth term in the elections starting Oct 4.

He has long advocated for lower rates to boost growth.

Higher interest rates make borrowing more expensive and discourage consumption but also tamp down inflation.

The central bank has proceeded with caution, however, given the spike in oil prices caused by the US-Israel war against Iran and uncertainty over the monetary policies of other leading economies.

The bank warned Wednesday that “higher than usual” risks to inflation remain, despite inflation falling to within the bank’s target of 3% plus or minus 1.5 points.

Lula is neck-and-neck in election polls with conservative senator Flavio Bolsonaro, son of jailed former far-right president Jair Bolsonaro, whom Lula defeated in 2022.

Even though inflation is easing, many Brazilians say they feel life has become more expensive.

The price of a “picanha” – Brazilians’ favourite steak – has become a symbol of what Lula’s critics see as his failure to tame prices.

During campaigning in 2022, he promised that he would put “picanha” back on the plates of the people, but four years later, its price has risen by around 10%.