Brazil Gambles on an Interest Rate Cut

Brazil’s central bank unexpectedly cut interest rates, betting it can bolster an economic recovery without fanning tame inflation. The bank cut its benchmark overnight rate from 18.5% to 17.5%, its lowest level since the real currency was introduced in 1994. The bank adopted a shift to a “downward” bias on future rate moves. “The rate cut is a bet worth making. Brazil’s fundamentals are so good, it can afford to make the gamble,” said Larry Krohn, chief Latin American economist with Donaldson, Lufkin & Jenrette in New York. If the U.S. Federal Reserve raises rates next week from a nine-year high, the Brazilian currency could slip as investors chase higher returns abroad.