Brazil central bank hikes base rate to 12.25 percent

BRASILIA: Brazil's central bank boosted its main interest rate to 12.25 percent, a quarter-point increase, extending its effort to rein in inflation in the rapidly growing South American economy.

The increase keeps the base rate at the highest in the G20 group of developed and emerging economies and was the fourth hike this year.

The quarter-point rate increase, decided unanimously, continues the "gradual adjustment of monetary policy" aimed at keeping prices under control, a statement from the central bank said.

The latest figures for May showed a 0.47 percent increase in prices, below the April pace of 0.77 percent but over 12 months inflation has been running at 6.55 percent, topping the official target of 4.5 percent.

President Dilma Rousseff, who only took over from predecessor Luiz Inacio Lula da Silva on January 1, had promised to bring the rate down, but has been caught by rising consumer prices.

Although hiking the interest rate will make credit more expensive in Brazil, it will also further enhance the country's allure to foreign investors who are guaranteed rate-linked returns higher than for any other big economy in the world.

That will inevitably push the real up further against the dollar -- which can hurt the economy by making exports more costly.

The real has already soared more than 100 percent against the greenback over the past eight years.

Copyright AFP (Agence France-Presse), 2011