Brazil hikes interest rate to six-year high

Brazil's central bank Wednesday announced that it raised the basic interest rate to 12.75 percent, the highest level since 2009, as the economy was hit by the effect of the global financial slump.

The decision by the bank's Monetary Policy Board (Copom) to raise the rate, from 12.25 percent to 12.75 percent, was expected by most market analysts, who had been forecasting a 13-percent rate by the end of 2015.

It was the fourth consecutive increase in the basic interest rate, and was unanimously voted for by Copom members.

Brazil's monetary policy is regulated by the government's target annual inflation rate, which was set at 4.5 percent for 2015 and 2016, with a two-point margin higher or lower.

The market has forecast inflation of 7.47 percent for this year, nearly a point higher than the target inflation's upper limit, forcing the bank to continue making monetary adjustments to rein in inflationary tendencies.

Higher interest rates, however, risk curtailing economic growth, leading analysts to predict a 0.58-percent contraction in the country's gross domestic product (GDP) for this year.

The minutes of the Copom meeting, along with the reasons behind the decision, will be released next week.

The monetary board's next meeting will be in 45 days. Endi