The bank's decision during what it called "an environment of greater uncertainty" comes after investors pulled capital out of Brazil over the past two months, sending stocks and the currency Real plunging 24%, since its August peak. Growth is forecasted to fall to the lowest since 2003.
On Wednesday also the US Federal Reserve announced a swap line of US$ 30 billion to help boost liquidity in Latin America's largest economy.
The real, the Brazilian currency, drop to the lowest in three years is also saddling companies with huge losses. Aracruz Celulose SA and food processor Sadia SA posted combined losses of at least US$ 2 billion on bets the real would continue a four-year rally against the dollar.
But even as the Brazilian economy slows the weakening currency is reviving inflation with the benchmark IPCA inflation index climbing to 6.25% in September from 6.17% in August. The government's target for the year is 4.5%.
Consumer, construction and wholesale prices as measured by the IGP-M-index accelerated in October rising by 0.98% from a month ago, reported the Getúlio Vargas Foundation on Thursday. The increase was particularly intense for the US dollar priced raw materials, 2.09%.
Companies are slashing output in advance of an expected economic slowdown from falling commodity prices and reduced lending. Bradesco Corretora, the research arm of Brazil's largest non-state bank, said growth in 2009 may slow to 2.2%, less than half this year's estimated 5.2%.
French makers Peugeot Citroen and Renault SA executives said this week they expect sales to stall in 2009 as car loan costs jump, ending four straight years of record sales. Fiat SpA, the country's top carmaker, and General Motors Corp. announced early vacation for thousands of workers to trim output by as much as 10%.
More over business confidence for the next six months is running at its lowest level in three years, the National Confederation of Industry said in a survey of manufactures published October 21.
Mercopress