UPDATE 4-Brazil shocks with interest rate hike in wake of election

miércoles 29 de octubre de 2014 21:14 GYT

(Adds possible market reaction and inflation risks)

By Alonso Soto

BRASILIA Oct 29 (Reuters) - Brazil's central bank raised interest rates on Wednesday, surprising investors with a bold move that signals President Dilma Rousseff could make more market-friendly policy changes after her narrow re-election victory on Sunday.

In a divided vote, the central bank's board decided to raise its benchmark Selic rate by 25 basis points to 11.25 percent. All 43 economists surveyed in a Reuters poll this week expected the bank to keep the Selic at 11 percent.

With the hotly contested presidential race over, the central bank moved swiftly to anchor inflation expectations at a time when markets are wondering if Rousseff is willing to overhaul her policies to regain the trust of investors.

The bank said inflation risks had become less favorable since its last rate-setting meeting in early September due to more intense price increases.

"In light of that, the committee considered it appropriate to adjust monetary conditions in order to guarantee, at a lower cost, the prevalence of a more benign inflation outlook in 2015 and 2016," the bank said in its statement.

Five of the eight members of the bank's monetary policy committee voted to raise the Selic, and the other three wanted to keep it unchanged.

"This definitely is a great step forward to rebuild the credibility of the inflation-targeting regime. Very well done," said Alberto Ramos, senior economist with Goldman Sachs in New York. "This is market friendly. Whether this means other (market-friendly) steps will come, only time will tell."   Continuación...