Brazilian monetary officials hiked interest rates to a six-year high on Wednesday to combat inflation and stem declines in the real, but economists say the move only tips the country closer to recession.
The Comitê de Política Monetária, or Copom, – the central bank's monetary policy committee – hiked the benchmark Selic rate by 50 basis points to 12.75 percent, in line with market expectations.
The central bank's third straight rate hike aims to slow above-target inflation and bolster the Brazilian real, which fell nearly 2 percent to a 10-year low of 3 per U.S. dollar on Wednesday. Inflation figures for February, due Friday, are expected to show annual inflation increased to a fresh 10-year high of 7.54 percent, well above the government's 4.5 percent target, according to a Reuters poll.
"This [hiking rates] is a dangerous move," Kathy Lien, managing director of BK Asset Management, told CNBC shortly after the decision. "Yes, inflation is a big problem and they've been working very hard to clamp down price pressures, but by raising interest rates, they seriously risk tossing the economy into deeper recession."
Brazil narrowly escaped a technical recession with growth of 0.1 percent in the third quarter following two quarters of contraction.