Brazil’s central bank raised its core interest rate by 3/5 of a percentage pt. Wednesday evening, confirming market expectations that it would act aggressively to deal with rising inflation and the threat of an overheating economy.

In a short statement the bank said that to ensure convergence with the government’s inflation target its monetary policy committee had decided unanimously to raise the bank’s target overnight rate, known as the Selic, to 9.5% a year from 8.75%.

Most market economists had expected an increase of half or three-quarters of a point, with some calling for a full-point increase, after expectations of economic growth and inflation rose steeply in recent weeks.
Henrique Meirelles, the bank’s governor since Y 2003, who until this week had refused to give any prior indication of how rates might move, signaled strongly in the past two days that the bank would act decisively. “In situations like this one, we need a program of vigorous action,” he said on Monday.

The bank’s most recent survey of market economists, published on Friday, showed the consensus for economic growth this year at 6%, well above the 4.5% or so that many economists regard as the potential, or non-inflationary, rate.

Consumer price inflation was seen rising to 5.41% a year by the end of Y 2010, almost 1 full point above the government’s target of 4.5%. Consumer prices rose 5.22% over past 12 months.

It was the 1st time the bank had raised rates since September 10, 2008, just days before the coming global crisis took the pressure off an overheating economy.—Paul A. Ebeling, Jnr. www.livetradingnews.com

Posted by Shayne Heffernan on Apr 29th, 2010and filed underBRIC, Equities, Latest News, Markets.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site