Despite a shrinking economy, Brazil's central bank decided to hike interest rates again on Wednesday, prompting analysts to question how to solve the conundrum that is Brazil.
"The challenge for Brazil [is that] there's really a contradiction between very high inflation and very slow growth and that's been a problem for the last couple of years. It's true that the authorities are in a bit of an awkward position," Irene Mia, regional director of Latin America and the Caribbean at the Economist Intelligence Unit (EIU) told CNBC.
Mia's comments follow the Brazilian central bank's decision to raise its benchmark interest rate to 10.50 percent, the seventh consecutive rate hike as the bank tries to contain rising inflation. The rate stood at 5.9 percent in December, above the bank's mid-range target of 4.5 percent.
The majority of economists polled by Reuters expected a 25 basis points (bps) rise but the bank surprised with its latest aggressive tightening as it introduced a 50bps increase.
The decision by the bank's monetary policy committee, known as Copom, was unanimous, prompting analysts to question when the committee will stop hiking rates as the previously booming member of the BRIC economies (of Brazil, Russia, India and China) suffers.
Brazil's economy shrank 0.5 percent in the third quarter from the second quarter of 2013, according to the government statistics agency IBGE.