* Current strategy remains valid, central bank chief says
* Tombini says policy stance will be adjusted when necessary
* He says Selic rate won't rise as high as in the past
By Alonso Soto and Silvio Cascione
BRASILIA, Feb 19 Brazil's central bank chief,
Alexandre Tombini, reaffirmed on Tuesday that interest rates
will remain at record lows for some time, but warned that
policymakers will not hesitate to raise borrowing costs if
necessary to keep a lid on prices.
His comments helped ease market expectations that the bank
could hike rates as soon as April, but confirmed views that
authorities are not ruling out tightening monetary policy later
this year if inflation remains a headache.
The central bank faces the difficult balancing act of
keeping rates at a level that stimulates an economy that has
struggled to grow in the last two years while keeping inflation
pressures at bay.
Brazil's inflation accelerated at the fastest monthly rate
in nearly eight years in January, edging dangerously close to
the ceiling of the official target of 4.5 percent plus or minus
2 percentage points.
In a bid to anchor inflation expectations, Tombini and other
officials have said that they are not comfortable with annual
inflation at 6.15 percent. However, they agree that inflation
should ease later this year due to a smaller increase in the
minimum wage, a stable exchange rate and moderate credit growth.
Tombini said that there is no risk of inflation spiraling
out of control in Brazil.
"The central bank has been communicating its strategy, which
remains valid so far. That doesn't mean, of course, that
monetary cycles have been abolished," Tombini said. "When
necessary, if prompted by the prospective inflation outlook, the
central bank's monetary policy stance will be properly
The bank, which has trimmed its Selic rate by 525 basis
points to 7.25 percent in a little over a year, has repeated in
its last three rate decisions that borrowing costs will remain
on hold for a "sufficiently prolonged period".
"Tombini reaffirmed that rates will remain at this level for
some time. He did not change his message," said Jankiel Santos,
chief economist at Espirito Santo Investment Bank in Sao Paulo.
"The central bank is sticking to its strategy."
Since taking office in 2011, Brazilian President Dilma
Rousseff has been on a crusade to lower some of the world's
highest interest rates to try to rekindle the more than 4
percent economic growth rates that made Brazil an emerging
Tombini said that if the central bank does raise interest
rates to curb inflation, it will not take them back to the high
levels seen in the past as structural changes have allowed for a
permanent drop in borrowing costs.
Under Tombini the central bank cut its benchmark Selic rate
10 straight times through October 2012. The next
central bank rate-setting meeting will take place March 5-6.
Interest rate futures pared some losses on the Sao
Paulo exchange, reaffirming bets on interest rate hikes later
this year. Rate futures dropped earlier in the session on
weaker-than-expected retail sales data.