Brazil hikes interest rate to 12.25% to slow inflation

[BRASÍLIA] Brazil's central bank on Wednesday lifted its key interest rate by half a percentage point to 12.25 per cent as Latin America's largest economy fights to keep a lid on inflation yet boost low growth.

"Taking into account the macroeconomic situation and inflation perspectives, COPOM (the bank's monetary committee) unanimously decided to raise the Selic rate," the bank said in a statement after its monthly two-day meeting.

Last month, the bank also raised the rate by 50 basis points, to 11.75 per cent, surprising many analysts who had expected a rise of just a quarter percentage point.

That rise followed a one quarter point increase in late October, the first since April, as freshly-reelected leftist president Dilma Rousseff selected a new finance team to tackle rising inflation which last year broke through a government target ceiling of 6.5 per cent.

The official target is 4.5 per cent.

While the bank focuses on rising prices as well as low growth, forecast to come in at barely zero for the year just ended and set to be equally pallid this year, industry wants lower rates to kickstart a recovery.

Last year Brazil slid briefly into recession last year on four straight years of low growth and some forecasters are warning this year is likely to see a repeat.

AFP