* Central bank raises Selic rate to 7.50 bps from 7.25 pct
* Decision was split, two of eight members voted to hold
* Inflation hits economy, Rousseff's re-election chances
By Alonso Soto
BRASILIA, April 17 Brazil raised interest rates
for the first time in nearly two years on Wednesday, stepping up
a battle against surging price increases that threaten to wreck
an already weak recovery in Latin America's largest economy.
The central bank hiked its benchmark Selic rate
to 7.50 percent from an all-time low of 7.25 percent. The move
follows growing public uproar over rapid price increases for
food staples and mounting political concerns as Brazil
approaches a third year of lackluster growth in the runup to the
2014 presidential election.
Twenty-six out of the 58 economists surveyed by Reuters
correctly expected the central bank to raise the Selic rate
by 25 basis points. Market traders were betting on
a steeper 50 basis points increase.
The decision by the bank's monetary policy committee, the
first rate hike since July 2011, was not unanimous. Two of the
bank's 8-member board, known as the Copom, voted to hold the
The central bank's decision statement said that high
inflation across a variety of goods and services made a monetary
policy response necessary.
Still, the bank said it will remain cautious because of
continuing economic uncertainty in Brazil and abroad.
"The committee considers that internal and mainly external
uncertainties surround the prospective scenario for inflation
and recommends that monetary policy be administered with
caution," the bank said.
Price increases in recent months accelerated so much that
inflation in March, at 6.59 percent, pierced the ceiling of the
government's official tolerance band of 6.5 percent. The rising
cost of groceries and other basics has fueled a popular uproar
in a country that endured runaway inflation as recently as two
Inflation is also complicating the political outlook for
President Dilma Rousseff, who is relying on economic stability,
if not dramatic growth, to help propel an expected bid for
re-election next year. Though Rousseff still enjoys high
approval ratings, political analysts say continued price
increases or any further economic volatility could erode her
Central bank chief Alexandre Tombini faces a difficult
balancing act. While rate hikes are needed to put a lid on price
increases, he must keep them at a level that can still stoke
growth in the sluggish economy.
High inflation has started to hit the real economy in a
country where the leftist administrations of Rousseff and her
predecessor, former President Luiz Inacio Lula da Silva,
launched social policies that helped millions climb into the
middle class, stoking inflation as Brazilians consumed more.
A decade-long boom fizzled in mid-2011 and a steady series
of stimulus measures since is now threatened by the price
increases. Retail sales fell unexpectedly in February as
Brazilians kept some everyday food products off their grocery
lists and officials worry that inflation could curb future
The symbol of the recent woes is the tomato.
The price of the vegetable has soared more than 120 percent
in value in a year and made the front page of local magazines
and newspapers criticizing the government's failure to keep
inflation in check. In some parts of Brazil, a kilo of tomatoes
costs more than a kilo of meat.