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Brazil raises key interest rate to 10.5% in aggressive move to fight inflation

BRASILIA--Brazil on Wednesday raised its key interest rate by 50 basis points to 10.5 percent, as Latin America's largest economy pursues an aggressive drive to curb inflation.

Outpacing market expectations of a hike of 25 basis points, the Central Bank's monetary policy commission (Copom) increased the rate by twice that at the end of its first meeting of 2014.

The bank said the decision was unanimous and “continues the process of adjustment” begun last April, when the rate stood at 7.25 percent.

The rate of 10.5 percent is the highest since March 2012.

At each of its last five meetings, Copom pushed borrowing costs by 50 basis points, but those moves failed to contain inflation, which stood at 5.91 percent at year's end, above market expectations.

President Dilma Rousseff, who is widely expected to win re-election in October, pushed for lowering borrowing costs so as to stimulate domestic consumption and investments.

The government and market analysts say Brazil's GDP growth in 2013 reached 2.3 percent. This year, analysts are banking on a two percent expansion.

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