MercoPress. South Atlantic News Agency

Basic interest rate in Brazil raised to 19,75%

Brazil's currency Real surged to a three year high against the US dollar after the Central Bank raised the basic Selic interest rate for the ninth straight month to 19,75% the highest since September 2003.

The rise of the benchmark rate attracts funds from abroad, but can also be a problem for Brazilian exporters who will receive less Reales for the overseas US dollars.

The move was seeing as a strong bid by the Central Bank to keep inflation in check and in line with an annual target between 5,5 and 8%.

"The trend is for the Real to remain strong after the rise in interest rates boosted also by favourable conditions in the external scenario", said Lucas Mendez, a San Paulo analyst.

So far this year the Real has appreciated 8,5% against the US dollar and traded Thursday at 2,45 to the greenback, which is the strongest since May 2002.

With the Real holding strong Brazilian companies are tempted to sell bonds abroad, which are also boosted by favourable acceptance in world money markets.