Sao Palo, Brazil (AHN) – Brazil’s central bank cited a “substantial deterioration” in its outlook for the economy and unexpectedly announced a cut in its key interest to 12 percent from 12.5 percent.

Rising prices have been a problem in Brazil, and the central bank had raised its key interest rate five times this year in an effort to contain inflation.

However, inflation is still running at a six-year high of 7.1 percent.

The continued high inflation rate couple with the unexpected cut coming a few days after several politicians had called for a rate cut. Observers say it calls into question the central bank’s independence.

Brazil, which is the biggest economy in South America, grew at the rate of 7 percent last year. This year Brazil’s economy is expected to grow at the rate of 5 percent.

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