Brazil's economic activity shrinks in October on rate hike impact

BRASILIA (Reuters) - Brazil's economic activity contracted in October, a central bank index showed on Wednesday, as aggressive interest-rate hikes to battle inflation takes a toll on growth in Latin America's largest economy.

The IBC-Br economic activity index, a leading indicator of gross domestic product, fell a seasonally adjusted 0.05% in October from the month before, compared with a 0.5% growth forecast by economists polled by Reuters.

The central bank also revised the September performance to stable, from a slight 0.05% increase reported previously.

The government and economists have been predicting a slowdown in growth in the second half due to the effects of interest rate hikes.

The central bank held interest rates at 13.75% earlier this month for the third straight policy decision, following an aggressive tightening totaling 1,175 basis points since March 2021.

Strong services sector recovery from the impact of the pandemic, an improved labor market and fiscal stimulus on the eve of a presidential election have been powering economic activity.

But higher borrowing costs began to weigh on credit and affect consumer spending.

The IBC-Br index grew 3.68% on a non-seasonally adjusted basis from October 2021, and was up 3.13% in the 12 months, said the central bank.

According to a weekly central bank survey, private economists project a 3.05% expansion for Brazilian GDP this year.

(Reporting by Marcela Ayres; Editing by Steven Grattan and Arun Koyyur)