Brazil expects rates below 8 pct by year's end-paper

Sat May 5, 2012 12:07pm EDT

* Government sees 50 point cut in base rate in May

* Government expects base rate at 7.5-7.75 pct by end 2012

SAO PAULO May 5 (Reuters) - The Brazilian government expects its benchmark interest rate to fall below 8 percent by year's end after it modernized rules on domestic savings accounts earlier this week, the local Folha de S.Paulo newspaper said on Saturday.

The government of President Dilma Rousseff also sees the central bank cutting the benchmark Selic rate by 50 basis points at its next monetary policy meeting later in May, the paper said, without naming its sources. The rate currently stands at 9 percent annually.

The Selic is 25 basis points above its lowest-ever rate of 8.75 percent, which occurred between early September 2009 and May 2010, when negative economic growth weighed on monetary policy.

On April 18, the central bank cut its base rate by 75 basis points to its current level and said in its subsequently released minutes on April 26 that further monetary easing would continue with care.

The paper said the government has lowered its outlook for a year-end Selic rate to 7.5 percent to 7.75 percent in the wake of a change in the laws on savings accounts' returns and considering the anemic economic growth and benign inflation in recent months.

Rousseff took a bold but risky step to shake Brazil from its economic torpor on Thursday, overhauling 19th century-era rules governing domestic savings accounts to allow interest rates to fall further in coming months.

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