By Alonso Soto
BRASILIA |Wed Feb 26, 2014 7:04pm EST
(Reuters) – Brazil raised interest rates by 25 basis points to 10.75 percent on Wednesday, taking advantage of a reprieve in inflation to slow the pace of monetary tightening and avoid smothering an economy close to recession.
The central bank’s monetary policy committee voted unanimously for the smaller rate hike, breaking a streak of six straight 50-basis-point hikes that took the Selic reference rate to its highest level in over two years.
The decision, widely expected by both market traders and economists, could spell the end of an aggressive monetary tightening cycle that some feared could tip the Brazilian economy into a recession.
The bank kept its post-decision statement almost unchanged from the previous one, only removing the reference that the decision was taken “at this moment.”
A wobbly economy, falling annual inflation and efforts by President Dilma Rousseff to tighten fiscal policy gave the central bank some breathing room to ease its rate-hiking cycle.
The central bank, which slashed rates to record lows in 2012, has been forced to add 350 basis points to the Selic to battle a spike in inflation that started to curb consumption in Latin America’s largest economy.
Brazil nearly slipped into a recession in the second half of 2013, according to economists polled by Reuters last week. Official data set for release on Thursday is expected to show the economy expanded by a meager 0.3 percent in the fourth quarter from the previous quarter, according to the poll.