* Careful monitoring of economic scenario - central bank
* Not under pressure, ready to act to curb inflation
* Markets bet rate hike will take some time
BRASILIA, April 2 Brazil's central bank will
keep a close eye on the economy to see if there is a need for
any action to tame stubbornly high inflation, the bank's chief
Alexandre Tombini said on Tuesday.
In a presentation to the Senate's economic affairs
committee, Tombini said he expected the recovery of the
Brazilian economy to gather strength later this year, but he
also warned of inflationary risks ahead.
"The central bank is monitoring the evolution of the
economic scenario to evaluate the need for other measures to
battle inflation," Tombini said.
He said the central bank will analyze upcoming inflation
data for March to decide on future steps.
Annual inflation in the month to mid March climbed to 6.43
percent, dangerously close to the ceiling of the official target
range of 6.5 percent. Economists have raised their forecasts for
inflation, suggesting policymakers will need to raise interest
rates to keep price expectations under control.
Economists disagree, however, on when the bank will hike
rates and point to upcoming inflation data as key to determine
Market traders widely expect the central bank to keep its
benchmark Selic rate at the current record lows of 7.25 percent
when it next meets on April 17 to avoid disrupting a still timid
Recent economic indicators show the recovery in Latin
America's largest economy remains uneven despite a barrage of
government stimulus measures that include tax breaks and
billions of dollars in cheap credit.
Brazil's industrial output shrank more than expected in
February, reversing most of the previous month's gains and
reaffirming expectations for a slow recovery in the South
Weaker industrial production data triggered a fall in
Brazil's interest rate futures contracts early on
Tuesday, which means the market is betting the bank will wait
longer to lift rates in order to support the economy.
Tombini denied the bank is under pressure from President
Dilma Rousseff's government to make economic growth a priority
and keep interest rates low even if inflation remains high.
He said the bank has already modified monetary policy by
explicitly communicating its worries about high inflation and
signaling a rate hike is possible if needed. He said the aim of
that change in message is to have an impact on inflation
The central bank has raised its inflation forecasts to more
than 5 percent for 2013 and 2014, well above the 4.5 percent
center of the target range which has a tolerance of plus or
minus two percentage points.