Brazil's central bank raised its benchmark Selic rate by another 25 basis points to 11.0 percent, its ninth rate rise since April 2013 but said its next move would depend on inflation and growth, signaling that it could be nearing the end of its monetary tightening campaign.
The Central Bank of Brazil, which has now raised its rate by a total of 375 basis points since last April and by 100 points this year, said its monetary policy committee, known as Copom, had decided to raise the rate unanimously, "at this moment," and without bias.
"The Committee will monitor the evolution of the macroeconomic scenario until its next meeting, so that it then defines the next steps in its monetary policy strategy," the central bank said.
The guidance is more neutral than in February and January when the bank said the rate rises were a continuation of the adjustment of the basic interest rate process that was started in April last year.
The rate rise was widely expected after headline inflation rose to 5.68 percent in February after dropping to 5.59 percent in January and the central bank in its quarterly inflation report last month raised its 2104 forecast to 6.1 percent from a previous projection of 5.6 percent as severe drought in Southern Brazil has affected the harvest and raised food prices.
The central bank's weekly poll of economists also showed that 2014 inflation expectations had risen to 6.30 percent last week from 5.86 percent in early February.
The central bank, which targets inflation at a midpoint of 4.5 percent, plus/minus 2 percentage points, also raised its 2015 forecast to 5.5 percent from 5.4 percent. Inflation has exceeded the bank's midpoint target in the last four years.
While the rate rise was expected, economists were unsure of the bank's guidance, with futures markets expecting the bank to continue raising rates while many economists believed the bank would pause after this meeting or the next one in May.
Last month the central bank's president, Alexandre Tombini, told a Senate committee that the rise in food prices appeared to be temporary and should fade over the next few months but monetary policy should still act to make sure the shocks a limited to the short term.
A recent appreciation of Brazil's real is also helping ease inflationary pressures compared with last year when the real depreciated by 13 percent against the U.S dollar as it was caught up in the general outflow of capital from emerging markets along with widespread concerns over inflation which hit a 2013-hight of 6.7 percent in June.
The real was again caught up in a general bout of weakness in emerging market currencies in January but since mid-March it has been rising and was trading at 2.26 to the dollar today, up 4.2 percent from the start of the year.
There are signs Brazil's economy is starting to slowly improve, with Gross Domestic Product in the fourth quarter expanding by 0.7 percent after contracting by 0.5 percent in the third quarter. On an annual basis, GDP expanded by 1.9 percent in the fourth quarter.
The central bank has forecast 2.0 percent growth this year, down from 2013's 2.3 percent.