Brazil hikes interest rate to 6-year high despite recession fears

[BRASILIA] Brazil raised interest rates on Wednesday to the highest level in six years, maintaining its aggressive pace of monetary tightening to fight inflation despite fears the economy is slipping into a deep recession.

The bank's monetary policy committee, known as Copom, voted unanimously to hike the benchmark Selic rate by 50 basis points for the third straight time. The move was expected by an overwhelming majority of economists and traders.

Brazil is one of the few major economies raising rates as BRICS peers such as China and India are loosening monetary policy to prop up economic growth.

The latest hike supports President Dilma Rousseff's drive to rein in inflation that surged to 12-year highs in mid-February. Rousseff is trying to regain the trust of investors who have soured on Latin America's largest economy, which was a Wall Street darling at the start of the decade.

Repeating exactly the same statement from its last meeting on Jan 21, the central bank gave no clear clues on whether it is planning to slow the pace of the rate-hiking cycle or continue at the current pace.

Economists interpreted the terse statement as a signal that the bank will go for another steep rate increase to keep inflation at bay. "The central bank is signaling that it will keep up the pace of monetary tightening," said Andre Perfeito, economist with Gradual Investimentos.

The central bank has raised rates by 175 basis points since October to curb inflation that has surged in the 12 months through mid-February to a 12-year high of 7.36 per cent.

REUTERS