August 5, 2014 / 2:37 PM / in 3 years

UPDATE 2-Brazil is far from stagflation: central bank

(New throughout, adds more Tombini comments)

BRASILIA, Aug 5 (Reuters) - Brazil is far from stagflation, central bank chief Alexandre Tombini said on Tuesday, forecasting the economy will pick up speed and inflation will ease in coming months.

“We certainly cannot speak of a crisis,” Tombini told lawmakers at the Senate’s economic affairs committee. “I want inflation to be lower than it is now, but it remains under control.”

Tombini’s remarks are at odds with the view of some economists and investors, who have noted recently that inflation is running above the central bank’s target range and economic growth has ground to a near halt.

President Dilma Rousseff’s main contender in the October presidential election, senator Aecio Neves, has recently described this outlook as one of “stagflation”.

In Tombini’s view, monetary policy is helping control inflation pressures, which should fade over the next year. He also said economic growth will recover in the second half of this year.

However, yields on interest rate futures rose in the Sao Paulo exchange as traders expected inflation to stay high, which could prompt the central bank to raise interest rates further.

Tombini did not speak of possible rate hikes, but he reiterated that the bank is not considering reducing its benchmark Selic interest rate in the near future from its current 11 percent.

Tombini also said there is no contradiction between high interest rates and the recent measures that injected up to $20 billion in credit into the country’s ailing economy.

The credit stimulus, aimed at ensuring financial stability, is known as “macroprudential measures.” When risks to the banking sector subside, the central bank may allow more credit to flow into the economy, Tombini said.

Tombini reckoned investments are growing at a slower pace than last year, but said they are set to recover in the longer term. His forecast for economic growth in 2014 is 1.6 percent, slower than the 2.5 percent GDP growth in 2013.

Tombini also acknowledged that the Brazilian industrial production is at risk of contracting in 2014. (Reporting by Luciana Otoni and Alonso Soto; Writing by Silvio Cascione; Editing by James Dalgleish and Dan Grebler)

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