To: THE ANT who wrote (64669 ) 7/22/2010 12:55:21 AM From: elmatador Read Replies (1) | Respond to of 217801 Brazil raises rates to 10.75 per cent By Jonathan Wheatley Published: July 22 2010 01:51 | Last updated: July 22 2010 01:51 Brazil’s central bank raised its policy interest rate by less than expected on Wednesday evening, adding to a growing consensus that the country’s domestic economy is running out of steam and is vulnerable to slower growth in the world’s other big economies. The bank raised its target overnight rate, known as the Selic, by half a percentage point to 10.75 per cent a year, less than the three-quarter point increase predicted by most economists – although others had called for a half-point rise. In a short statement, the bank said: “Considering the process of risk reduction for the inflationary outlook that has prevailed since the Copom’s last meeting, caused by the recent evolution of domestic and external factors, the Committee believes that this decision will help to intensify this process.” Brazil’s economy grew by 2.7 per cent in the first quarter compared with the previous quarter and by 9 per cent over the previous 12 months. Many economists believe the quarterly rate slowed to 1 per cent or less during the second quarter, bringing economic activity back into line with Brazil’s potential, or non-inflationary, growth rate. Even so, many economists expected the bank to maintain the pace of tightening set at the previous two six-weekly meetings of its monetary policy committee, when the Selic was increased by three quarters of a percentage point. Some have argued that indications of slower growth in the second quarter may have been influenced by non-repeating factors, such as the removal of tax breaks on household electrical goods and the dent to economic activity caused by the World Cup football championships, when the country effectively closed down on the national team’s match days. Nevertheless, many commentators who previously worried that the central bank had been slow in raising interest rates to restrain growth have recently worried instead that it may have raised them by too much. As Barclays Capital wrote to clients on Tuesday: “In less than 20 days, market concerns [have] shifted from ‘too much growth’ to ‘too much tightening’”.In addition to the slower pace of domestic growth, concern has become more widespread that Brazil may be vulnerable to the policy-induced slowdown in China’s economy – one of the biggest markets for Brazilian exports of iron ore, soya and other commodities – and to the rockier outlook facing markets for Brazil’s manufactured goods and processed foods among developed economies.