Brazil increases interest rates

Brazil is facing growing inflation

Brazil has increased its benchmark interest rate to 13% from 12.25% in an attempt to stem rising inflation.

The rise was larger than expected and it follows increases of half a percentage point by the central bank at its last two meetings.

Some analysts now expect the government to raise rates again at its next rate-setting meeting and fear it will miss its year-end inflation target of 4.5%.

A survey of economists found they expected inflation to reach 6.53%.

Following the latest rate rise, Cristiano Souza, an economist at ABN Amro, said: "A 75-basis-point hike is better to bring inflation expectations down, which is a big problem."

He predicted that the government would increase rates by the same amount again at its next meeting in September.

While inflation has been rising, Brazil has also seen robust economic growth, prompted in part by consumer spending as Brazilians enjoy rising incomes and cheaper credit.