UPDATE 2-Brazil c.bank hints that tightening cycle not over

* Central bank meeting minutes similar to April document

* Monetary policy still most efficient tool vs inflation

* Central bank says to stay especially vigilant on prices (Adds analyst comment, context, yields, byline)

By Luciana Lopez

SAO PAULO, June 16 (Reuters) - Brazil's central bank indicated that another interest rate hike could be coming but gave few signals about how long a tightening cycle could last, saying it will stay nimble as the inflation outlook changes.

The bank's monetary policy committee, known as Copom, said it fell to monetary policy to remain "especially vigilant" to keep short-term inflation from becoming a long-term problem in minutes to last week's policy meeting, released on Thursday.

While the bank sees the inflation outlook improving since the April meeting, it stressed that 12-month inflation would stay at or above target at least until the fourth quarter of this year. After that, annual inflation should begin easing, the bank said.

"Despite the uncertainty, they say inflation conditions are slightly more favorable than previously," said Pedro Tuesta, an economist with 4Cast in Washington. "I think they may hike once more, and if needed they will adjust policy with macroprudential measures."

The minutes also emphasized policymakers' strategy of a "sufficiently prolonged" cycle of tightening to bring inflation to target in 2012 -- the same language the bank has used other times this year.

Brazilian policymakers are walking a fine line in bringing inflation back to target. Sharply higher rates would risk derailing economic expansion, expected at around 4 percent this year from a 7.5 percent surge last year.

But those kinds of rate increases would likely draw foreign investors seeking juicy returns for money borrowed at near zero rates abroad. That wave of inflows would further boost Brazil's currency BRBY, which is already strong enough to worry exporters.

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

Brazilian interest rates: r.reuters.com/sej89r

Graphic on economic growth: r.reuters.com/tux38r

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

The minutes were similar to those from the bank's April meeting, which analysts saw as hawkish.

Yields on interest rate futures contracts <0#DIJ:> edged slightly higher in early trading. The yield on the contract due January 2012 DIJF2 rose to 12.4 percent from 12.38 percent on Wednesday.

Last Wednesday the bank unanimously raised the benchmark Selic interest rate BRCBMP=ECI for a fourth straight time, lifting it to 12.25 percent from 12 percent as expected, to try to rein in inflation.

The statement accompanying the decision closely mirrored that of the April rate hike, saying the bank is still uncertain about how much Brazil's economy is slowing. [ID:nN0840076]

The central bank has now raised the Selic rate by 150 basis points this year from 10.75 percent at the end of 2010.

Those hikes put Brazil among a group of powerhouse emerging markets, such as India and China, who are tightening policy as their economies expand briskly, even as developed markets such as the United States and Europe struggle.

But Brazil's economic growth has come at a price: The IPCA consumer price index rose 6.55 percent in the 12 months through May, its second month above the target of 4.5 percent plus or minus 2 percentage points.

Other countries throughout Latin America have similarly tightened policy to combat inflation, but regional interest rates could be reaching a plateau.

Chile, for example, slowed the pace of its rate increases this week, raising its benchmark interest rate by 25 basis points. And Peru held its benchmark interest rate earlier this month, pausing a five-month-long tightening cycle. [ID:nN14200260] and [ID:nN09287372]

POLITICS AND POLICY

Brazil's inflation rate has caused a major headache for President Dilma Rousseff, whose efforts to push through economic reforms such as a tax overhaul could be overshadowed by worries about consumer prices.

Policymakers have also hastened to reassure markets that they're not throwing in the towel on 2011 just yet. Central Bank President Alexandre Tombini has said the bank's policymakers are committed to ending the year with inflation as close as possible to the target center.

Analysts see monthly inflation now slowing as a surge in global food and fuel prices subsides. The 12-month inflation rate will nevertheless rise for awhile yet because the monthly numbers were lower around this time of year.

(Additional reporting by Vanessa Stelzer and Daniela Machado; Editing by Chizu Nomiyama)