UPDATE 2-Restoring Brazil inflation to target feasible -cenbank official

lunes 20 de julio de 2015 18:22 GYT
 

(Adds Volpon comments and context)

By Bruno Federowski

SAO PAULO, July 20 (Reuters) - The liklihood of Brazilian inflation reaching the midpoint of an official target range next year is growing more feasible, central bank director Tony Volpon said on Monday, hinting authorities may not need to raise rates much further to anchor expectations.

Speaking to investors in Sao Paulo, Volpon said an ongoing economic adjustment was likely to bring down inflation expectations in 2016.

Volpon said a cooling job market after years of record-low unemployment should usher in a "strong disinflationary process that will become more evident throughout 2016."

A surge in the price of government-controlled prices such as electricity and a weaker local currency has lifted inflation to nearly 9 percent, or twice as much as the 4.5 percent center of the target.

Volpon said the impact of the adjustment of these relative prices are likely to ease sharply in coming months. Volpon added that tighter fiscal policies are likely to take a greater toll on inflation in the coming months.

"The effects of the economic policy should show greater potency in 2016," Volpon said. "Despite many uncertainties that we face today, reaching the target by late 2016 is feasible and a desirable monetary policy strategy."

The central bank has come under great pressure to halt the rate-hiking cycle that started in October to prevent further harm to an economy expected to contract 1.7 percent his year.

Volpon said that the bank's acknowledgment that inflation expectations are falling does not mean it is done raising rates.

"I will vote to raise rates until inflation expectations are at the center of the target in 2016," said Volpon, adding it was too early to think about cutting rates. "Our monetary policy strategy continues to be the same." (Reporting by Bruno Federowski; Writing by Alonso Soto; Editing by Christian Plumb and Diane Craft)