UPDATE 2-Brazil signals another rate hike as inflation remains high

jueves 26 de marzo de 2015 13:26 GYT
 

* Central bank raises 2015 inflation forecast to 7.9 percent

* Analysts expect at least one more rate increase in April (Rewrites throughout with central bank director comments on inflation, analyst on interest rate)

By Alonso Soto and Silvio Cascione

BRASILIA, March 26 (Reuters) - Brazil's central bank signaled on Thursday it will continue to raise interest rates as it expects inflation to remain too high next year despite a contracting economy.

In its quarterly report, the bank raised its inflation forecast to 7.9 percent in 2015, acknowledging it will surpass the official target range of 2.5 percent to 6.5 percent for the first time since 2003.

The spike in inflation is expected even as the bank sees the economy contracting by 0.5 percent this year, closer to market expectations for a negative growth of 0.83 percent.

Of more concern for policymakers is that, contrary to their own promises, their estimates show inflation will not hit the 4.5 percent center of the target in 2016.

"Although we have seen some progress in the stabilization of inflation expectations for 2016, we still don't consider that to be enough," central bank director Luiz Awazu Pereira said in a press briefing on Thursday.

"Monetary policy will remain vigilant to eliminate the second-round effects that we are seeing now," Awazu said.   Continuación...