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Brazil central bank raises interest rate to 11.25%

Brazil's central bank raised its key interest rate half a percentage point to 11.25 percent late Wednesday, amid fears that inflation was getting out of hand.

The move, though, adds to upward pressure on Brazil's currency, the real, whose soaring value against the dollar has already become problematic for the country's exporters.

The central bank's monetary policy committee decided the interest rate hike unanimously, the institution said in a statement.

Market observers had been expecting the increase, the first since July last year.

Inflation last year quickened to 5.91 percent, well above the government's target of 4.5 percent.

While new President Dilma Rousseff, who only took over from predecessor Luiz Inacio Lula da Silva on January 1, had promised to bring the rate down, she has been caught by rising consumer prices.

Although hiking the interest rate will make credit purchases more expensive in Brazil, it will also further enhance the country's allure to foreign investors who are guaranteed rate-linked returns higher than for any other big economy in the world.

That will inevitably push the real up further against the dollar. 

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