(Adds quotes from inflation report and context, paragraphs 3-6)
BRASILIA, June 26 (Reuters) - Brazil's central bank cut its economic growth forecast for 2014 and expects inflation to subside after a temporary peak this year, reinforcing expectations that policymakers will keep interest rates steady for some time.
In its quarterly inflation report issued on Thursday, the central bank lowered its 2014 economic growth forecast to 1.6 percent from 2 percent previously.
The bank rose its 2014 inflation forecast to 6.4 from 6.1 percent but said current inflation pressures will subside afterwards. It projected an annual inflation rate of 5.1 percent in mid-2016.
"Current inflation drivers ... tend to retreat or even disappear through the period that is considered in monetary policy setting," the central bank said.
"Inflation will be resistant in coming quarters. But if monetary conditions are maintained, it tends to converge towards the target in the final quarters of the forecast scenario."
The central bank targets inflation at 4.5 percent, with a tolerance margin of 2 percentage points.
The bank also estimates that the economy will likely grow at an annual rate of 1.8 percent in the first quarter of 2015.
The bank's benchmark lending rate is currently at 11 percent.
(Reporting by Silvio Cascione Editing by W Simon)