UPDATE 1-Brazil inflation to ease despite weaker real -central bank

Thu Aug 7, 2014 12:30pm EDT

(Adds Araujo comments, context)

By Walter Brandimarte

RIO DE JANEIRO Aug 7 (Reuters) - A weaker real will not change the declining path of inflation in Brazil, central bank director Carlos Hamilton Araujo said on Thursday, signaling no imminent changes to monetary policy.

Araujo said inflation would still ease toward a government target in a scenario that takes into account market projections for an exchange rate of 2.39 reais per dollar at the end of 2014 and 2.48 at the end of 2015.

The central bank had kept the real, Brazil's currency, within a tight range of 2.20 and 2.25 per dollar since April, thanks to a program of interventions in the foreign exchange market that many analysts believe to be intended at curbing inflation.

This week, however, the currency broke out of that range, weakening toward 2.30 reais per dollar and contributing to bets of higher interest rates next year.

The central bank halted a year-long monetary tightening cycle in May to give the economy a respite even as inflation remains at the upper limit of the official target, which is 4.5 percent with a tolerance of 2 percentage points, up or down.

Twelve-month inflation is expected to climb to 6.6 percent in July despite a slowdown on a monthly basis, according to a Reuters poll of analysts.

Araujo reiterated that part of the impact of tighter monetary policy on inflation in Brazil remains to be felt. (Writing by Alonso Soto; Editing by Meredith Mazzilli and W Simon)

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