* Central bank hikes Selic by 50 bps as expected
* Bank says hike to help lower inflation through next year
* Currency, fiscal discipline key in tightening cycle
By Alonso Soto
BRASILIA, July 10 Brazil raised its benchmark
interest rate to 8.50 percent from 8 percent on Wednesday,
maintaining the pace of monetary tightening to battle
above-target inflation in Latin America's largest economy.
The central bank's monetary policy committee voted
unanimously to hike its Selic rate by 50 basis
points, a move widely expected by markets.
Under the leadership of Alexandre Tombini the central bank
has hiked rates three consecutive times this year in a bid to
regain its credibility as an inflation fighter and curb prices,
which in June rose at their fastest pace in 20 months.
"The Committee understands that this decision will
contribute to lowering inflation and ensuring that the trend
continues next year," the central bank said in a statement,
repeating the same language used in the previous decision.
A sharp depreciation of the real, which increases the
value of imports, poses a serious challenge for the central
bank, which has pledged to bring inflation below the 5.84
percent mark recorded last year.
High inflation has already started to erode Brazilians'
purchasing power, threatening the popularity of President Dilma
Rousseff who is trying to appease a nationwide movement against
poor public services and corruption sparked by a hike in bus
fares last month.
Rousseff, who is widely expected to run for re-election next
year, has promised to increase investment in public services but
at the same time maintain fiscal discipline to regain the
confidence of investors after two years of subpar growth.
In a nod to the central bank, the administration has said it
is putting the final touches in a budget cut of up to 15 billion
reais ($6.63 billion).
Fiscal prudence and the exchange rate level will be key to
determine how far the central bank will go in the current
tightening cycle, which some economists say could bring the
Selic back to double digit levels.