UPDATE 2-Brazil central bank hints at another rate rise-minutes
* Brazil central bank, in a change, says fiscal stance could turn neutral
* Bank maintains inflation forecasts despite weaker currency
By Alonso Soto
BRASILIA, Sept 5 (Reuters) - The Brazilian central bank on Thursday signaled it is likely to raise interest rates again in October in an effort to quell inflation, but left doubts on whether it will continue tightening monetary policy after that.
Persistently high inflation in Brazil is hurting investment and consumption and needs to be reversed in a timely manner, the central bank said in the minutes of its last rate-setting meeting on Aug. 28.
The bank reiterated that higher rates should limit consumer price pressures stemming from a weaker local currency.
"The minutes were very neutral, did not innovate and convey a sense of near-term continuity of the rate-hiking cycle," said Alberto Ramos, chief Latin America economist for Goldman Sachs.
The central bank's monetary policy committee, known as Copom, last week voted unanimously to raise its benchmark Selic interest rate by a half-percentage-point to 9 percent, keeping the pace of monetary tightening to battle high inflation and regain investors' confidence.
The bank, led by Alexandre Tombini, has embarked in one of the world's most aggressive cycles of rate hikes, which risks dampening a slow-moving recovery in Latin America's largest economy.
The central bank gave few hints of what could come after its next meeting on Oct. 9, but changes in the language of policymakers in the meeting minutes point to a less strident tone toward inflation, some economists said.
Trading in the country's interest rate futures contracts implied a 61 percent chance that the bank will hike the Selic by 50 basis points to 9.50 percent at its next meeting, according to Thomson Reuters data. There is a 39 percent chance that interest rates climb to 9.75 percent.
The central bank said for the first time in months that conditions are forming to put the fiscal balance on a neutral stance, a line that was interpreted as a move to reduce tensions with the Finance Ministry.
Until its July rate decision, the bank had said the government's fiscal position was expansionary, or negative for inflation. On the other hand, Finance Minister Guido Mantega said the fiscal bias had turned neutral.
"A possible change in the expansionary fiscal stance is something that only the central bank can see at this moment," said Jankiel Santos, chief economist with BES Investimento in Sao Paulo.
Santos also said there have been no clear signals that the government is ready to further tighten spending for the fiscal stance to turn neutral.
He also pointed to the bank keeping its inflation projections unchanged despite a much weaker currency as an indication that the rate-hiking cycle could be limited.
"Those projections mean that you do not need the tightening cycle to be more intense," Santos said.
The bank kept inflation forecasts unchanged for this year and next despite lowering the value of the Brazilian currency, the real, to 2.40 per U.S. dollar in its calculations. In its the previous meeting, the bank had used a real at 2.25 per dollar for its projections.
The real has weakened over 13 percent against the dollar so far this year.
After cutting rates to record lows, the central bank this year has hiked rates by 175 basis points to counter expectations for high inflation this year and next.
Although inflation has eased recently, data points to a pick up in prices that will likely keep inflation closer to 6 percent at the end of the year.
The bank expects year-end inflation of 6 percent and 5.4 percent for 2013 and 2014, respectively.