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Brazil central bank sees economic growth remaining weak in Q2

Banco Central do Brasil expects economic growth to either remain stable or increase marginally in the second quarter, according to the minutes of the central bank's latest monetary policy meeting.

Economic expansion could accelerate in subsequent quarters, potentially driven by a government program ushering withdrawals from the FGTS workers' severance fund and PIS-Pasep employee fund, the central bank said.

However, it still expects growth to "occur at a gradual pace."

In the global context, the central bank has observed more favorable conditions driven in part by additional monetary stimulus from several central banks. Risks tied to a slowing global economy remain, however, given geopolitical uncertainties fueled by trade disputes and other tensions, the monetary authority added.

The central bank, which cut its benchmark Selic rate by 50 basis points to a record-low 6.0% at its last meeting, believes that maintaining the rate at 6.5% would have led to below-target inflation in 2020, the minutes showed.

The last major consumer price reading before the rate cut showed that in mid-July, annual inflation was nearly a full percentage point below the bank's 2019 target of 4.25%.

In the minutes, the central bank said "continuation of reforms and necessary adjustments in the Brazilian economy is essential for the reduction of its structural interest rate, for the full efficacy of monetary policy, and for sustainable economic recovery."

Brazil's lower house of Congress on Aug. 7 approved the text of a key pension overhaul in a second-round vote, Reuters reported. The bill, which aims to generate around 1 trillion reais of public savings over the next 10 years, still needs to clear additional votes in the upper house.

As of Aug. 6, US$1 was equivalent to 3.98 Brazilian reais.