Brazil's central bank raised interest rates for the second time in a month to curb what new President Luiz Inбcio Lula da Silva described this week as the "virus of inflation".
While the move was applauded in the financial markets, industry leaders said high interest rates were choking the economy and failing to curb inflation.
The rise in the central bank's prime lending rate by 1 percentage point to 26.5 per cent underlines the challenges facing Mr Lula da Silva, whose economic policies have already come under attack from left-wingers in his Workers' party.
In a further tightening of monetary policy, the central bank also raised commercial banks' mandatory reserves on short-term deposits from 45 per cent to 60 per cent.
