Brazil’s central bank lowered their benchmark Selic interest rate by 25 basis points, driving it to a historic low. Interest rates have been slashed nearly in just over one year, and now rest at 7.25 percent.
Hours later, Seoul mimicked the decision by lowering the benchmark seven-day repurchase rate, again by 25 basis points, to 2.75 percent.
Both countries acted in response to the IMF announcement that it believes the world economy is doing worse than originally anticipated. Emerging market like Brazil and South Korea are slowing down even faster, according to the IMF review. Both countries also lowered their growth rate forecasts in domestic reviews.
“A rate cut now is better than doing it later to support growth,” Governor Kim Choong Soo told a press conference in Seoul following the rate cuts. “Monetary easing now will do more good than harm.”
The Brazilian monetary committee in charge of the decision to slash rates said it considered “the risks to inflation, the recovery in domestic economic activity and the complexity enveloping the international environment.” The country is relying on maintaining low interest rates and a government plan to safeguard some industrial sectors by deploying protectionist measures and directed tax cuts in order to reverse the slowdown.
The IMF announced in its review that it expects the Brazilian and South Korean economies to rebound to a four percent and 3.2 percent growth next year, respectively.
