Brazil’s economy grew at a moderate pace in the first months of 2012, the central bank said in its regional economy report published on its website.

The “relative recovery” was fueled by retail sales and robust domestic demand, the bank said.

Brazil’s economic expansion faltered in the first quarter even as policy makers cut borrowing costs to near record lows, reduced taxes on home appliances and directed the state development bank to boost lending. The seasonally adjusted economic activity index, a proxy for gross domestic product, fell 0.35 percent in March after drops in January and February.

Economists reduced their forecasts for 2012 growth after the most recent data were released May 18. GDP will rise 3.09 percent this year, down from a forecast of 3.20 percent the week before, according to a weekly central bank survey of about 100 economists at financial institutions, released May 21.

Policy makers have reduced benchmark borrowing costs by 3.5 percentage points since August, more than in any other Group of 20 nation, to 9 percent. Interest-rate futures contracts show traders betting the rate will fall to 8 percent later this year.

Prices rose less than analysts forecast in mid-May, climbing 0.51 percent, compared with a median estimate of 0.56 percent among economists surveyed by Bloomberg.

To contact the reporter on this story: Raymond Colitt in Brasilia at rcolitt@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net