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UPDATE 1-Brazil central bank makes 150 bps interest rate hike, signals another

·2 min read

(Adds policy details, context)

BRASILIA, Dec 8 (Reuters) - Brazil's central bank on Wednesday raised interest rates by 150 basis points and signaled another such hike in February, waging one of the world's most aggressive battles with inflation even as Latin America's largest economy has tipped into recession.

The bank's rate-setting committee, known as Copom, decided unanimously to raise its benchmark interest rate to 9.25%. All of the 31 economists polled by Reuters had forecast a second-straight increase of a percentage point and a half, which policymakers signaled at their October meeting.

Brazil's current tightening cycle is the most aggressive among major economies, as the central bank confronts 12-month inflation in double digits and President Jair Bolsonaro's vows to boost welfare spending in an election year.

Some economists have warned that looser fiscal policy has backfired on the government by forcing the central bank, whose formal autonomy was written into law https://www.reuters.com/business/finance/brazils-top-court-upholds-central-bank-autonomy-amid-rising-inflation-2021-08-26 this year, to hike rates sharply. Higher borrowing costs contributed to a slight economic contraction in the second and third quarters.

A weaker currency, severe drought and higher fuel prices helped to push consumer prices 10.7% higher in the 12 months to mid-November. That is the hottest inflation among G20 countries except for Argentina https://www.reuters.com/world/americas/argentina-inflation-spikes-sharply-despite-battle-curb-prices-2021-10-14, which has left interest rates unchanged in 2021, and Turkey https://www.reuters.com/world/middle-east/turkish-central-bank-surprises-by-slashing-rates-200-pts-16-2021-10-21, which has shocked markets by slashing rates after raising them early this year. (Reporting by Marcela Ayres Writing by Brad Haynes Editing by Stephen Eisenhammer)