19:33 ET<\/span>
\n<\/span><\/p>\nBrazil’s central bank has raised its key interest rate to 11.75% in a bid to hold down inflation in one of the world’s fastest-growing economies.<\/p>\n
The rise, from 11.25%, is the second half-point rise since the start of the year.<\/p>\n
It is also the second under President Dilma Rousseff and central bank head Alexandre Tombini, both of whom took office in January.<\/p>\n
Inflation was 5.91% last year and is forecast to remain above 5% in 2011.<\/p>\n
The rate rise came on the same day as news of a modest rebound in Brazilian industrial production, which increased by 0.2% in January from the previous month.<\/p>\n
This was far better than the consensus forecast of a 0.7% decline and came after a 0.8% month-on-month decline in December.<\/p>\n
Currency headache<\/span><\/p>\nAlthough the rate rise may help to curb inflation, it risks sucking in foreign money, increasing upward pressure on the already overvalued Brazilian real.<\/p>\n
Capital inflows from outside Brazil have soared as investors flee record-low rates in more developed countries. <\/p>\n
The strengthening of the real has hit Brazil’s manufacturers hard because their exports have become more expensive.<\/p>\n
“Despite the improving picture for industry in the very latest data, the bigger picture is that manufacturers are still struggling to live with the effects of a stronger currency,” said Neil Shearing, senior emerging markets economist at Capital Economics.<\/p>\n
Last month, in another effort to stop the economy overheating, the government said it would implement 50bn reais ($30bn; \u00a319bn) of spending cuts.<\/p>\n
But Brazil should do more to rein in a massive consumer credit boom that has helped fuel the economy’s rapid expansion, analysts say.<\/p>\n
Mr Shearing at Capital Economics said the government needed further fiscal tightening to ensure more balanced growth. <\/p>\n
“This, in turn, will require a radical, and politically very difficult, overhaul of the public finances that goes well beyond the 50bn reais of spending cuts that were recently announced,” he said.<\/p>\n
The Brazilian economy, Latin America’s largest, grew more than 7% in 2010 and is expected to grow between 4.5% and 5% this year.<\/p>\n
Other anti-inflation measures have included a big increase in banks’ reserve requirements to hold back lending.<\/p>\n<\/p><\/div>\n<\/p>\n
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