(Recast with rate decision and statement)
By Alonso Soto
BRASILIA, Oct 29 (Reuters) - Brazil’s central bank raised interest rates on Wednesday, shocking investors who expected policymakers to stay put until President Dilma Rousseff unveils policy changes following 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 is over, the central bank moved swiftly to anchor inflation expectations at a time when markets are doubtful Rousseff can effectively turn around an economic slump.
The bank said the balance of inflation risks has become less favorable since its last rate-setting meeting in early September due to adjustments in relative prices.
“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 board members voted to raise the Selic, and the remainder opted to keep it on hold.
Inflation hovering above the official target ceiling of 6.5 percent has raised pressure on the central bank to raise borrowing costs. The central bank aims to keep inflation at the center of the target, between 2.5 percent and 6.5 percent.
Most economists expected the bank to refrain from any action until Rousseff announces changes to her economic team.
Rousseff has pledged policy changes to reverse economic weakness that cost her support among Brazil’s middle class in the tight race against market darling Aecio Neves. (Reporting by Alonso Soto; Editing by Dan Grebler, Chizu Nomiyama and Andrew Hay)