* Worries of inflation persist despite slowdown
* Finance Minister Mantega vows fiscal discipline
* Inflation forecasts seen stabilizing at current level
* GDP growth estimate for 2011 seen on downward trend (Rewrites to add comments, context, new data throughout)
By Guillermo Parra-Bernal and Vanessa Stelzer
SAO PAULO, Aug 22 Forecasts for Brazil's economic growth are being driven lower by its tighter monetary policy and a slowing global economy, a central bank survey showed on Monday, signaling a steeper-than-expected slowdown is looming.
The central bank survey found that forecasts for economic growth this year fell for a third week to a median 3.84 percent in the week ended Aug. 19.
Brazil's economy, the largest in Latin America, is showing signs of slowing after expanding in 2010 at the fastest pace in 24 years, growth that has led to higher interest rates in a bid to contain inflation.
While economists in the survey upped their inflation forecasts for this year for the first time in three weeks, projections for prices seem to be stabilizing at levels close to the central bank's ceiling of the inflation target for the year.
Finance Minister Guido Mantega on Monday vowed to keep a lid on budget spending to help tame inflation in an interview with local newspaper Valor Economico. [ID:nN1E77L03C]
Brazil's benchmark IPCA consumer price index will rise 6.28 percent in 2011, according to the central bank's Focus poll, slightly up from a 6.26 percent forecast the prior week. The central bank aims for inflation between 2.5 percent and 6.5 percent this year.
Both the decline in growth estimates and the stabilization of inflation predictions are in line with a rise in borrowing costs, a tightening of the local commercial lending market and a deterioration in the global economy that is clouding the scenario for local investment, analysts said.
"In our opinion, the joint impact of policy tightening already in the bag and global growth headwinds will entail a sharper growth slowdown than most observers seem ready for," Marcelo Carvalho, senior Brazil economist for BNP Paribas in Sao Paulo, said in a note to clients.
INFLATION FOR 2012
Reinforcing expectations of slowing growth, the year-end inflation forecast for 2012 fell for a third week to 5.20 percent from 5.23 percent, the survey showed. The forecast for inflation in the 12 months ahead slightly slowed to 5.43 percent from 5.44 percent in the prior week, the survey showed.
Economists in the survey kept unchanged for a second week their forecast for the year-end level of the benchmark overnight lending rate Selic at 12.50 percent. Rates are expected to end 2012 at the same level.
Some economists say rates should be increased further to drive down inflation quicker to within the target range. Under Central Bank President Alexandre Tombini's plan, consumer prices will only drop toward 4.5 percent -- the mid-point of the government's inflation target -- by the end of next year.
Brazil's central bank has raised the Selic rate five times so far this year, by a cumulative 175 basis points to 12.5 percent.
But economists including Carvalho are increasing their bets on a possible rate cut as early as next month -- as signaled by the yield on the interest-rate future contracts that matures next month.
The yield on the October contract DIJV1 is trading on Monday at 12.33 percent -- 17 basis points below the current level of the Selic. The rate futures contracts are widely used in Brazil as a gauge of the Selic's future levels.
"We expect the next policy move will be a rate cut, already in 2011, unlike the consensus view of rates unchanged throughout the forecast horizon," Carvalho said.
Government data showed Friday that annual inflation through the middle of August, measured by the trailing 12-month IPCA index, accelerated to 7.10 percent -- well above the 6.5 percent ceiling of the government's target range.
Some economists have blamed Mantega's policies for exacerbating price increases by boosting government demand for goods and services.
In the Valor interview, Mantega said that the times of conflicting fiscal and monetary policies "are over," signaling that the government will seek to contain expenses when economic growth is accelerating.
Brazilian officials will likely continue to struggle with high inflation in coming months, even as economic growth shows signs of flattening due to a relatively high consumer debt load and contagion from the global crisis.
Brazil's fiscal largess in the past made has it harder for the central bank to raise interest rates to control inflation, some of those economists say. (Editing by W Simon and Padraic Cassidy)