Fresh rate rise for Brazil to counter inflation

Brazil's central bank Wednesday raised its key interest rate a half point to 13.75 percent, a sixth straight rise as Latin America's largest economy fights to stem inflation during a slowdown.

The bank's monetary policy committee (Copom) unanimously agreed the rise as it stepped up anti-inflationary efforts as prices continue to outstrip a central government target of 4.5 percent after it "evaluated the macro-economic and inflationary outlook."

The increase had been expected by analysts after April saw 12-monthly inflation hit 8.17 percent in the world's seventh-largest economy, adding to an economy struggling amid a fifth straight year of low growth.

Last month's increase in the key rate had seen it climb to its highest level since January 2009.

Government and International Monetary Fund forecasts expect GDP to contract between 1.0 and 1.2 percent this year, which would be the worst showing in a quarter of a century.

Tuesday had brought a further blow for the government as the national statistical institute IBGE indicated industrial production slid 1.2 percent in April.

Analysts forecast interest rates will close out the year at 14 percent before falling back.

Industry has voiced concern about the cost of obtaining credit during a slowdown as rates continue to rise.

But inflation worries have persuaded the government to keep rates high after price rises hit 6.41 percent in 2014, just below the government's maximum tolerated rate of 6.5 percent.

The official central annual target rate remains 4.5 percent.

President Dilma Rousseff, re-elected in October, has responded to the bleak outlook by paring back the budget while promising to protect social programs for the working class.

Brasilia last month unveiled a package of spending cuts worth some $23 billion designed to put the country on track toward achieving an ambitious surplus of 1.2 percent of GDP this year and 2.0 percent in 2016–17.

The cuts are the largest in the 12 years that the ruling Workers Party has been in office.

After several years of booming growth, Brazil's economy has slowed in recent years and growth last year was a very muted 0.1 percent.
Source: AFP