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BRASILIA, March 22 (Reuters) - Brazil’s weaker labor market and its strengthening currency are expected to help slow inflation in coming months, but policymakers are not considering lowering interest rates, central bank chief Alexandre Tombini said on Tuesday.
In his opening remarks at a Senate hearing, Tombini said the bank is not working with the hypothesis of easing monetary policy and will take the necessary measures to lower inflation to the 4.5 percent target if the balance of risks deteriorates.
Brazil’s annual inflation rate tops 10 percent but economists in a central poll see it easing to under 7.5 percent by year-end, prompting investor bets that interest rates would be cut by early 2017.
Tombini’s remarks had little impact on interest rate futures markets <02#DIJ:>, with longer-term yields remaining mostly lower on the day.
Interest rates have remained at a nine-year high of 14.25 percent since last year, even as the economy slumped into what is expected to be its worst recession in more than 100 years.
“Despite the factors I mentioned, namely prospects of a smaller exchange rate pass-through to prices, smaller increases in government-regulated prices, a wider output gap and a weaker growth trend abroad, the balance of risks for inflation remains challenging,” Tombini said.
Tombini also said the current level of international reserves is moderate and should be preserved. Politicians from the ruling coalition have pressured policymakers to sell part of the reserves to reduce public debt and foster investments.
Reporting by Marcela Ayres; Writing by Silvio Cascione; Editing by Chizu Nomiyama and W Simon