Brazil again steeply raised interest rates on Wednesday to convince investors that the government is serious about reining in runaway prices, despite fears that aggressive tightening will make an expected recession worse.
In a unanimous vote, the central bank's nine-member monetary policy committee raised the Selic rate by 50 basis points for a fourth straight time to 13.25 percent, the highest level since December 2008.
An overwhelming majority of traders and analysts expected the 50-basis-point hike.
Brazil's benchmark interest rate now stands well above those of other major emerging market countries such as India and Turkey, both with rates at 7.5 percent.
While most major economies have cut rates to shore up growth, Brazil has raised borrowing costs by 225 basis points in the past six months.
The Brazilian central bank gave no clear indication it is ready to stop the rate-hiking cycle just yet.
The bank repeated the same laconic message in its post decision communique, leaving analysts guessing.
Although most analysts believe Wednesday's hike could be the last rate increase of the year, a growing number acknowledged the bank could raise rates slightly more to counter possible shocks stemming from expected U.S. monetary tightening.
"The decision reinforces the bank's conservative approach, which aims to restore credibility in the eyes of the ratings agencies," said Jankiel Santos, chief economist with BESI in Sao Paulo.
"The repetition of the statement leaves the door open for the June meeting, meaning the bank did not want to clearly signal that this would be the last hike."
The central bank is spearheading efforts by President Dilma Rousseff to restore credibility with investors after years of interventionist policies and lavish spending jacked up prices and threatened Brazil's investment-grade rating.
Aided by aggressive fiscal tightening, the central bank has promised to bring 12-month inflation, which was running at 8.13 percent in March, to the 4.5 percent center of an official target by 2016.
Inflation expectations have remained high despite the recent tightening, but some price pressures are starting to ease.
In a positive development for inflation, the has gained nearly 9 percent in April, reducing the price of imported goods. The impact of recent hikes in regulated prices such as electricity and fuel has also started to wear off.
Fears that the aggressive monetary tightening could drag the economy into a deeper recession than already expected this year could also prompt policymakers to end the cycle soon.
For Goldman Sachs senior economist Alberto Ramos the bank's upcoming decision could hinge on whether the real remains stable or suffers a steep fall that pushes up prices. Ramos expects a final 25-basis-point hike on June 3, but does not rule out a pause if inflation recedes.
Before the meeting analysts expected the Selic rate to end the year at 13.25 percent, but believed policymakers would cut it to 11.50 percent by late 2016, according to a central bank survey of economists released on Monday.
The bank's two new directors, Tony Volpon and Otavio Damaso, voted on the meeting for the first time.