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Brazil Central Bank Statement on Interest Rate Decision (Text)

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Aug. 31 (Bloomberg) -- Following is a translation of the statement by Brazil’s central bank on its interest rate decision today.

“The Copom decided to reduce the Selic rate to 12 percent a year, without a bias, by a vote of five in favor and two votes for holding the Selic at 12.50 percent a year. Re-evaluating the international scenario, the Copom considers there was a substantial deterioration consisting of, for example, a generalized reduction of great magnitude in the growth projections for the principal economic blocs. The committee understands that there was an increase in the chance that the restrictions to which various advanced economies are exposed today becomes prolonged for a longer-than-expected time period. It also notes that, in these economies, the space to use monetary policy is limited and the outlook is one of fiscal restrictions. In this way, the Committee evaluates that the international scenario shows a disinflationary bias in the relevant time period.

For the Copom, the transmission of the external developments for the Brazilian economy can materialize through various channels, among them, a reduction in trade, moderation of investment flows, more restrictive credit conditions and a worsening of consumer and business sentiment. The committee understands the complexity surrounding the international environment will contribute to intensify and accelerate the process of moderation in domestic activity in progress, which is already being seen, for example, in a decline in the growth projections for the Brazilian economy. In this way, in the relevant time frame, the balance of inflationary risks is becoming more favorable. In this regard, the revision of the outlook for fiscal policy also points in this direction.

In this context, the Copom understands that, by mitigating in a timely way the effects coming from a more restrictive global environment, a moderate adjustment in the benchmark rate is consistent with a scenario of inflation converging to the target in 2012.”

To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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