Brazil seen raising interest rates to curb prices

* Brazil seen raising rates for first time since July

* Tombini to show inflation credentials at first meeting

* Analysts will search for clues to tightening pace

By Ana Nicolaci da Costa

BRASILIA, Jan 19 (Reuters) - Brazil's central bank is
widely expected to raise interest rates on Wednesday for the
first time since July, hoping to fend off inflation at a
six-year high in one of the world's fastest-growing economies.

The decision will be the first under President Dilma
Rousseff, who took office on Jan. 1 promising to extend
Brazil's economic prosperity while keeping inflation in check.

Alexandre Tombini, who will preside over his first meeting
as central bank chief, is under pressure to take tough measures
to curb rising prices.

The central bank is seen hiking the benchmark Selic rate
BRCBMP=ECI by 50 basis points to 11.25 percent, according to
all 21 economists in a Reuters poll. It will announce the
decision after 6 p.m (2000 GMT). [ID:nSPG003198]

Brazil's central bank is trying to balance the need to
fight rising prices with the risk that a hike in borrowing
costs will attract even more capital inflows -- which would
push its already overvalued currency even higher.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on the Selic rate: link.reuters.com/pup68k

Brazil's economic growth: link.reuters.com/huf64p

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Investors will also focus on the bank's statement for any
clues how much further rates will be raised in the future.

"If the statement is neutral, and not very informative, it
is probably indicating that the pace of rate hikes going
forward will be in 50 basis point increments," said Roberto
Padovani, chief Brazil economist at WestLB in Sao Paulo.

"If the statement highlights rising inflation risks, then
probably it is opening the door for an even bigger future rate
hike of 75 basis points."

The decision to resume monetary tightening after three
meetings with no action comes as the central bank tries to
bring price pressures back to the center of its target.

Annual inflation in Brazil was 5.91 percent in 2010 -- way
above the middle of the central bank's target of 4.5 percent.

Analysts raised their inflation forecasts for 2011 for a
sixth week running to 5.42 percent in a weekly central bank
survey.

Strong commodity and food prices are expected to keep
putting pressure on local inflation.

A strong labor market and domestic demand could also
continue to fuel price pressures. Bradesco bank highlighted in
a recent note to clients that inflation pressures were rising
in sectors other than food, such as in services.

Still, some government officials, like Finance Minister
Guido Mantega, have publicly downplayed the inflation risks.

That has created the perception among some analysts that
the government is pressuring Tombini to be restrained in
tightening and help sustain a surge in consumer credit at the
heart of Brazil's economic boom.
(Editing by Brian Winter and Kenneth Barry)