UPDATE 2-Brazil's low growth to help tame inflation -central bank
(Adds inflation report quotes, drivers of slower growth, analyst comment paragraphs 4-14)
By Silvio Cascione
BRASILIA, June 26 (Reuters) - Brazil's inflation will start to subside next year after economic growth slows further, the central bank said on Thursday, reinforcing expectations that it will not raise interest rates in the near future.
In its quarterly inflation report issued on Thursday, the bank lowered its 2014 economic growth forecast to 1.6 percent from 2 percent previously, faltering from 2.5 percent growth last year.
The central bank said the annual inflation rate will likely drop to 5.1 percent in mid-2016 from an expected 6.4 percent at the end of 2014, edging closer to its 4.5 percent target under a scenario of keeping current interest rates steady until then.
"It confirms that the benchmark interest rate will remain unchanged for a very long time," said Cristiano Oliveira, an economist with Banco Fibra, in Sao Paulo.
The bank's benchmark lending rate is currently at 11 percent after nine consecutive increases through April.
Weak economic growth and stubbornly elevated inflation have weighed on President Dilma Rousseff's campaign for re-election. Although unemployment remains low, her popularity has dropped steadily in recent months, pointing to a hotly contested run-off vote in October.
Even with its downward revision to the 2014 growth outlook, the central bank's view is rosier than market expectations of 1.2 percent in a weekly poll. Continuación...