(Adds analysts' comments and details from minutes)
By Alonso Soto
BRASILIA Dec 11 Brazil's central bank signaled
on Thursday it may slow the pace of monetary tightening at its
next meeting as it expects the government to limit spending and
inflation to ease in coming years.
In the minutes of its last rate-setting meeting, the bank
said inflation could accelerate in the short term and remain
high, but price increases should begin to slow in 2015.
The central bank last week raised its Selic rate
by 50 basis points to 11.75 percent, stepping up
monetary tightening to battle inflation and reinforce President
Dilma Rousseff's efforts to regain investors' confidence.
The bank hinted then it may reduce the size of future rate
increases given the lagging effects of previous monetary
In the minutes, the bank reinforced that message with
expectations that inflation would subside gradually starting in
"It (the bank) anticipates that inflation is likely to
remain high in 2015, but next year it should enter a long period
of decline," the text said.
It added that the bank sees inflation converging toward the
center of the official target, 4.5 percent, in 2016. The
inflation target ranges from 2.5 percent to 6.5 percent.
The bank also said fiscal policy could turn contractionary
next year amid government promises to keep spending in check and
reduce subsidies to state-run banks.
"The central bank is signaling caution by saying that it
works with a long period of declining inflation," said
Alessandra Ribeiro, economist and partner with Tendencias in Sao
Paulo. "The bank said that with the fiscal adjustment and a
slightly higher Selic it can meet its goal."
A contractionary fiscal policy, or less government spending,
would reduce inflationary pressures.
BBVA economist Enestor dos Santos said in a research note
that the bank could be forced to keep the aggressive pace of
monetary tightening if the Brazilian currency continues to
depreciate and the government fails to keep a lid on spending.
Central bank chief Alexandre Tombini said on Tuesday that
inflation could remain above the ceiling of the official target
in the next couple of months as a weaker real increases
the value of imports.
Although 12-month inflation slowed slightly to 6.56 percent
in November, inflation for 2014 could still clock in above the
6.5 percent target ceiling. If that materializes, it would be
the first calendar year in more than a decade that inflation
breached that ceiling.
(Reporting by Alonso Soto; Additional reporting by Brad Haynes;
Editing by W Simon)