* Brazil central bank sees 2011 inflation at 6.4 percent * Sees 2012 inflation at 4.7 percent vs 4.8 percent before * Central bank forecasts 2011 GDP growth at 3.5 percent (Recasts, writes through)
By Luciana Lopez and Vanessa Stelzer
SAO PAULO, Sept 29 (Reuters) - Brazil's central bank suggested interest rates could be cut more moderately than markets expect as it stressed the risk of a global economic slowdown, even as Brazilian inflation remains high.
The bank, which surprised markets with a 50-basis-point cut in its key rate to 12 percent last month, said "moderate adjustments" were consistent with bringing inflation back toward the 4.5 percent center of its target range in 2012.
In a quarterly inflation report released on Thursday, it raised its forecast for inflation for this year to 6.4 percent from 5.8 percent, even as it cut its growth expectation for Latin America's largest economy to 3.5 percent from 4 percent.
The higher inflation forecast is almost a full percentage point lower than the current annual rate of 7.33 percent.
But the revision underlines how price pressures remain a barrier to the government's desire to lower interest rates that are among the world's highest.
Yields on interest-rate futures contracts <0#DIJ:> rose on Thursday as investors, while still seeing rate cuts ahead, pared their bets for the size of those decreases.
Brazil inflation graphic: r.reuters.com/haj83s
Brazil interest rates graphic: r.reuters.com/cas53s
PDF on Brazil's economy: link.reuters.com/daq33s
The yield on the contract due January 2013 DIJF3, among the most highly traded early in the session, rose as high as 10.54 percent from 10.41 percent in the previous session.
Central Bank Governor Alexandre "Tombini and the central bank are signalling that they are not going to make drastic cuts in rates," said Flavio Serrano, an economist with BES Investimentos in Sao Paulo.
"Rates are adjusting to an outlook of 50-basis-points cuts rather than the 75-basis-points or 1-percentage-point cuts the market was starting to price in."
Policy-makers had justified last month's cut by pointing to the darkening outlook for global growth.
On Thursday, the central bank said it saw a "substantial slowdown" in global economic activity with a "higher risk of recession in mature economies, and relatively benign commodity prices."
While the central bank raised its inflation view for this year, it lowered the 2012 forecast to 4.7 percent from 4.8 percent, underscoring its expectation that struggling developed economies will result in lower inflation pressures.
In the minutes from last month's policy meeting, the monetary policy committee, known as Copom, pointed the finger of blame for slower growth at the euro zone's sovereign debt crisis and a sluggish U.S. economy.
INFLATION TO SLOW
The central bank's interest-rate cut last month prompted worries among some economists, who saw the move as risky, given inflation above target since April. The central bank this year is targeting inflation of 4.5 percent, plus or minus 2 percentage points.
Other major economies in Latin America have yet to follow Brazil's example in lowering rates, pausing rate hikes but not yet cutting.
President Dilma Rousseff has often repeated her desire for borrowing costs to be more in line with those of global peers but the brisk inflation makes that tricky.
Getting those price pressures down is another political priority for Rousseff, who inherited inflation at a six-year high when she took office in January. Inflation worries have threatened to overshadow her first year in office, becoming a focal point for discussion even as long-term reforms potentially stall.
Nor are Brazilians -- including the lower-income voters who make up Rousseff's power base -- particularly forgiving when it comes to inflation. With long memories of runaway prices in decades past, voters will almost certainly punish any politician who doesn't keep a tight rein on prices.
Rousseff has promised to cut about $30 billion from the budget this year to try to shift some of the burden for cooling the economy onto fiscal policy from monetary policy, but analysts say rates remain a key inflation-control tool.
Link to report: here (Reporting by Sao Paulo newsroom and Jeb Blount in Rio de Janeiro; Writing by Luciana Lopez; Editing by Stuart Grudgings and Jan Paschal)