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Brazil cuts interest rate to record low

[BRASÍLIA] Brazil's central bank slashed interest rates to a record low for the second time in less than two months Wednesday, as Latin America's biggest economy struggles to grow.

The bank cut its main rate to 5.5 per cent from the previous historic low of six percent, citing risks of a "more intense slowdown in the global economy."

The unanimous decision was announced shortly after the US Federal Reserve also cut its benchmark rate for a second time this year.

Adjusting the key Selic rate is seen as one of the few tools Brazil has to revive growth more than two years after a severe economic crisis devastated its finances.

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Brazil avoided slipping back into recession in the second quarter after its economy grew 0.4 per cent, compared with the first three months of the year when it shrank 0.1 per cent.

Economic indicators released since its last meeting in July suggest a "resumption of the recovery process of the Brazilian economy," the bank said in a statement announcing the rate cut.

But it said the pace would be "gradual."

The back-to-back rate cuts come after the central bank long resisted pressure to lower borrowing costs for fear of fanning inflation as President Jair Bolsonaro struggled to push his signature pension reform bill through Congress.

But the lower house voted overwhelmingly in favour of the controversial measure, which is now before the Senate.

Its approval is seen as crucial to paving the way for other much-needed reforms, including tax, that Mr Bolsonaro has promised.

In July, his government unveiled an US$11.2 billion stimulus plan.

AFP