UPDATE 1-Brazil not ruling out rate hikes despite disinflation hopes -source
(Adds market reaction, 7th paragraph)
By Alonso Soto and Silvio Cascione
BRASILIA Feb 3 (Reuters) - Brazilian policymakers have not ruled out hiking interest rates in coming meetings even as a gloomier global economy raises hope that double-digit inflation will drop sharply this year, a senior government official told Reuters on Wednesday.
The Brazilian central bank surprised markets by keeping its Selic rate on hold at 14.25 percent at its last meeting after signaling tighter monetary policy to curb 12-year high inflation.
Some market economists and even members of President Dilma Rousseff's administration have said that there is room for rate cuts at the end of the year to ease the pain of a crippling recession.
The senior official, who is knowledgeable about economic policy, said inflation expectations need to drop near the 4.5 percent target center before officials consider cutting rates. However, in recent weeks, inflation forecasts have increased.
He said central bank policymakers, including governor Alexandre Tombini, stood ready to increase interest rates further, if inflationary pressures picked up.
"Tombini and everybody have been pretty clear that if they need to hike rates again they will," said the official, who requested anonymity to speak freely. "No one said that necessarily the next step in rates will be to cut."
Yields on interest rate futures <0#2DIJ:> jumped on the comments, traders said, trimming investor bets on a rate cut in the near future. Continuación...