Brazil raises interest rates to 11.25%

image captionNew President Dilma Rousseff has vowed to get Brazil's spending boom under control

Brazil's central bank has raised its key interest rate to 11.25% in a bid to cool inflation in one of the world's fastest growing economies.

The rise, from 10.75%, is the first under President Dilma Rousseff and central bank head Alexandre Tombini, both of whom took office this month.

Inflation was 5.91% last year and is forecast to remain above 5% in 2011.

But the rate rise risks sucking in foreign money, adding to pressure on the already overvalued Brazilian real.

The central bank warned that the rate hike may be just the start of a series of rises to curb inflation.

Capital inflows from outside Brazil have soared as investors flee record-low rates in more developed countries.

The strengthening of the real has hit Brazil's manufacturers hard because their exports have become more expensive.

But Brazil needs to do more to rein in a massive consumer credit boom which has helped fuel the economy's rapid growth.

The economy, Latin America's largest, grew more than 7% in 2010 and is expected to grow between 4.5% and 5% this year.

Other anti-inflation measures have included a big increase in banks' reserve requirements to hold back lending.

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