Brazil raises interest rates by 100 basis points to 12.25
Benchmark rate could soar to 14.25 as early as March based on guidance
Government spending package fell short of expectations

BRASILIA, Reuters Brazil39;s central bank raised interest rates by a greaterthanexpected 100 basis points on Wednesday and pointed to matching hikes for the next two meetings, signaling a shift to a new governmentnamed governor will not weaken its determination to battle inflation.

If the proposed roadmap is followed, the benchmark borrowing rate could soar to 14.25 as early as March more than an eightyear high reflecting policymakers39; determination to curb rising inflation expectations amid robust economic activity, a tight labor market and a weaker currency.

The bank39;s ratesetting committee, known as Copom, unanimously increased the benchmark Selic rate to 12.25, noting a recent governmentannounced package of budget measures had impacted Brazil39;s real currency, asset prices and inflation expectations.

The highlyanticipated spending cut package from President Luiz Inacio Lula da Silva39;s administration fell short of expectations, straining confidence in the government39;s ability to manage the rising public debt.

The committee judges that these impacts contribute to more adverse inflation dynamics, said policymakers in the decision statement, the last under governor Roberto Campos Neto39;s leadership at the central bank.

Campos Neto, who will be succeeded in January by…