UPDATE 2-Brazil cenbank sees stubborn inflation despite weak growth
* Bank lowers 2013 inflation view to 5.8 pct from 6 pct
* Sees inflation at 5.7 pct in 2014, 5.5 pct in Q3 2015
* 2013 GDP growth forecast cut to 2.5 pct from 2.7 pct
BRASILIA, Sept 30 (Reuters) - Inflation in Brazil will remain stubbornly high well into 2015 even as the economy struggles to gain steam, the central bank said, highlighting the somber outlook for Latin America's largest country as it heads in to an election year.
In its quarterly inflation report released on Monday, the bank lowered its 2013 inflation forecast to 5.8 percent from 6 percent previously. However, it increased its inflation view for 2014 to 5.7 percent from 5.4 percent previously and expects inflation to remain at 5.5 percent in the third quarter of 2015.
The bank also revised down its estimate for economic growth to 2.5 percent this year from 2.7 percent previously. The bank sees growth keeping that pace until the second quarter of 2014.
The more downbeat view of the economy highlights challenges that President Dilma Rousseff faces to bring growth back to the heyday of above 4 percent annually that made Brazil a Wall Street investment favorite. Rousseff is widely expected to run for re-election in 2014 and is ahead in early voting intention polls.
It also raises the stakes for the central bank, which is trying to regain its inflation-fighting credentials. It has steadily raised its benchmark Selic interest rate this year to contain a surge in consumer prices. The Selic now stands at 9 percent.
Economists doubt the bank will tighten monetary policy much more to bring inflation back to 4.5 percent, the midpoint of the official inflation target which ranges from 2.5 to 6.5 percent.
"One thing is clear; the central bank should do more to battle inflation given these projections," said Flavio Serrano, senior economist with BES Investimento in Sao Paulo. "But we don't think the bank will do that. We don't think the bank will raise rates enough to hit the center of the target by 2014."
Serrano expects the bank to raise the Selic rate by another 50 basis points on Oct. 9 and then end the cycle with either a 25 or 50 basis points increase in November. Most other private economists agree that the bank will likely end the cycle soon with rates below 10 percent.
Annual inflation has stayed well above the officials target since 2010 in what economists say reflects the authorities' growing tolerance for higher inflation in order to prioritize economic growth.
After bringing its benchmark interest rate to record lows last year, the central bank surprised many by raising borrowing costs in April to slow inflation in hopes of stopping it from wrecking a slow recovery in Latin America's largest economy.
The bank's chief Alexandre Tombini has vowed to use all the available tools to bring down inflation in the future to pave the way for stronger growth.
For Banco Fator's chief economist, Jose Francisco de Lima Goncalves, the exchange rate, fiscal policy and a possible increase in fuel prices this year are better predictors for the path of monetary policy in Brazil.
"These (projections) don't change the outlook for the pace of interest rate increases," Goncalves said.
In the report, the bank repeated that monetary policy should remain especially vigilant to lower the risks of inflation remaining high for a relevant period of time.