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SAO PAULO: Brazil's central bank hiked its reference interest rate 0.75 percent to 13 percent, amid concerns over accelerating inflation in Latin America's biggest economy.
It was the third and biggest rate hike this year, with the previous two increases of half a point each.
In a brief statement, the central bank's monetary policy committee, known as COPOM, said on Wednesday the sharp Selic rate increase was decided unanimously to "promote the gradual convergence of the inflation rate with targets" set by economic authorities.
Economists and brokers questioned by the central bank are forecasting inflation this year will hit 6.53 percent – higher than the government's target of 4.5 percent, and above the bank's ceiling of 6.5 percent.
The rate hike did not catch anyone by surprise, as market analysts had expected an increase of 0.5 or 0.75 percent under current inflation pressure.
Brazil already has one of the highest interest rates among the significant emerging economies in the world. Only Turkey, with a rate of 16.75 percent, outstrips it.
Inflation in Brazil has taken off since last year, largely driven by more expensive food prices and a boom in consumer credit that is fuelling big-ticket purchases such as cars.
For authorities, the trend is worrying, especially as the country recently made investment grade after convincing the markets it had finally closed the door on its past propensity to hyperinflation.
Under President Luiz Inacio Lula da Silva's centre-left administration, the country's economy has strengthened in recent years, but there are troubling signs.
A monthly survey carried out by the Getulio Vargas Foundation, a respected think-tank, showed consumer confidence has slipped to its lowest level in two years on fears the economy could falter.
Even though the worldwide downturn is dampening growth, gross domestic product is still expected to expand a healthy 4.8 percent this year, down from 5.4 percent last year.
Central bank chief Henrique Meirelles has vowed to bring inflation back to 4.5 percent by the end of next year, suggesting that more interest rate increases would be made.
Jose Francisco de Lima Goncalves, head economist for the Fator Doria Bank, said: "We believe the central bank will continue to increase interest rates by half points in its upcoming meetings until it reaches a level of 14.25 percent at the end of the year."
He predicted that high rate would be maintained through 2009.
The survey by the Getulio Vargas Foundation showed a 4.9 percent drop in consumer confidence over the past month.
Pessimism over the economy was largely behind the drop, the foundation said.
It added that the proportion of consumers saying they intended to buy more had dropped from 13 percent to 10.7 percent of the 2,000 households questioned over the past three weeks. The proportion who said they would buy less remained stable at 29 percent.
- AFP/so
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