Brazil cuts rates to 12%

A surprise lowering of Brazil's benchmark interest rate has analysts expecting more cuts in the future.

The Central Bank cut Brazil's Selic interest rate to 12 per cent from 12.5 per cent.

The bank says it's an effort to stimulate the economy ahead of potential shocks coming from the US and Europe, where economies are struggling.

Some worry the cuts will stoke inflation. But the bank argues that spending cuts by the government and a dreary economic scenario outside of Brazil should help tamp down inflation.

Bank of America-Merrill Lynch said in a Thursday research note it expects the Central Bank to keep cutting the rate, so that it ends at 11 per cent this year.

The note points out that should the global economy bounce back, Brazil may have to reverse the rate cuts.