Brazil slams brakes to curb inflation

 

Brazil’s central bank has raised
its key interest rate to 11.25 per cent in a bid to cool inflation in one of
the world’s fastest growing economies.

The rise, from 10.75 per cent, is
the first under President Dilma Rousseff and central bank head Alexandre
Tombini, both of whom took office this month.

Inflation was 5.91 per cent last
year and is forecast to remain above 5 per cent in 2011.

But the rate rise risks sucking in
foreign money, adding to pressure on the already overvalued Brazilian real.

The central bank warned that the
rate hike may be just the start of a series of rises to curb inflation.

Capital inflows from outside Brazil
have soared as investors flee record-low rates in more developed countries.

The strengthening of the real has
hit Brazil’s manufacturers hard because their exports have become more
expensive.

But Brazil needs to do more to rein
in a massive consumer credit boom which has helped fuel the economy’s rapid
growth.

The economy, Latin America’s
largest, grew more than 7 per cent in 2010 and is expected to grow between 4.5
per cent and 5 per cent this year.

Other anti-inflation measures have
included a big increase in banks’ reserve requirements to hold back lending.

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