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BRASILIA, March 12 (Reuters) - Brazil's inflation will rise more than expected this year, but tighter monetary and fiscal policies and a slowdown in activity will ease price pressures in 2016, the central bank said on Thursday, leaving the door open for more interest rate increases.
In the minutes of its most recent rate-setting meeting, the central bank said it sees a greater possibility of inflation easing back to the center of its target in 2016 despite a recent surge in prices.
At that meeting last week the bank raised its benchmark Selic rate to its highest in six years, maintaining an aggressive pace of monetary tightening to curb inflation that surged to 10-year highs in February.
Policymakers acknowledged that their efforts to battle inflation have not been sufficient, but they expect more moderate demand and a slowing labor market to help monetary policy.
"There are very few changes in the minutes. The bank continues to leave the door open for more increases," said Thais Marzola Zara, chief economist with Rosenberg in Sao Paulo. "If the bank does not change its guidance until the next meeting it will probably opt for another hike of 50 basis points."
Other analysts said the minutes dismissed any possibility of a 75-basis-point rate increase at the bank's next meeting on April 29 as some in the market started to predict.
In the minutes, the central bank showed greater concern about 2015, raising its estimate for inflation for this year and increasing its projections for government-controlled prices to 10.7 percent from a previous 9.3 percent.
The bank also removed a previous reference to inflation entering a period of long decline in 2015.
However, the bank now sees inflation lower in 2016.
Going in the opposite direction from most major economies, Brazil has raised rates by 175 basis points since October, raising fears the once-booming economy could slip into a deep recession this year.
President Dilma Rousseff has raised taxes and limited public spending to ease inflation and regain the trust of investors after three years of subpar growth. (Reporting by Alonso Soto and Silvio Cascione; Editing by W Simon and Chizu Nomiyama)