Brazil’s Central Bank Raises 2016 Inflation View

However, the bank reduced its forecast for next year

Brazilian Central Bank President Ilan Goldfajn, shown on June 7, said he is confident the government’s inflation target can be reached by mid-2017.

Photo: Agence France-Presse/Getty Images

SÃO PAULO—The Brazilian central bank on Tuesday acknowledged the country’s long fight against inflation is far from over, but sought to reassure markets that its resolve to tame price increases remains strong.

The bank raised its forecast for Brazil’s consumer-price index for this year to 6.9%, from 6.6% in March’s report, but cut its 2017 inflation forecast to 4.7% from 4.9%.

The projections are out of sync with market forecasts, which point to a 5.5% inflation rate at the end of next year. They also highlight how quickly price increases must slow from a 9% annual pace in mid-June.

The bank’s new president, Ilan Goldfajn, expressed confidence that price pressures will weaken relatively rapidly thanks, among other things, to stricter fiscal policies.

“We can create the conditions for [inflation] projections to go down in the future,” Mr. Goldfajn told reporters after the release Tuesday of the bank’s quarterly inflation report.

Earlier this month, the central bank held its benchmark interest rate, known as the Selic, unchangedat 14.25%. In the inflation report, the bank indicated a rate cut is unlikely at its next meeting on July 20.

Private-sector analysts have been pushing back their forecasts for when a rate cut might come as prices, especially for food, continued to rise more rapidly than previously expected.

Earlier this year “I was thinking interest rates would fall faster,” said João Pedro Brugger, an economist from Leme Investimentos, a brokerage firm. Mr. Brugger said he nevertheless still expects cuts before year-end. “I think the easing cycle could begin in the next few months,” he said.

At the inflation report news conference, Mr. Goldfajn tried to avoid fueling hopes of monetary easing. The bank’s inflation forecasts are based on current borrowing costs, he said, and other factors, such as fiscal improvement, need to be in place before rates can be cut.

“We are creating conditions for a reduction in interest rates,” he said. “And I think everyone [in the government] believes it needs to be done in a responsible manner,” he said.

Mr. Goldfajn was brought to the job by interim President Michel Temer, Brazil’s vice president who in May stepped in for President Dilma Rousseff after she was suspended to stand impeachment trial in the Senate. Ms. Rousseff is accused of doctoring the budget to hide a widening gap, something she denies.

Brazil’s weak fiscal situation is often blamed by the central bank as adding to price pressures, because government spending increases overall demand in the economy and concern about the ballooning deficit weaken the currency and increase import prices. The Temer administration’s pledge of a better fiscal performance has boosted hopes of economic improvement.

“The government has shown it can get reforms approved [in Congress],” said José Augusto Fernandes, and economist at Brazil’s National Confederation of Industry, or CNI. “Business confidence is increasing,” he said.

In fact, the central bank improved its view of the country’s economic performance this year, although it continued to predict a deep recession. The bank expects gross domestic product to shrink 3.3% in 2016, versus a 3.5% contraction forecast in the previous report.

Last year, Brazil’s economy shrank 3.8%.

Mr. Goldfajn said improving business sentiment could help jump-start growth. The banker, however, said that global factors including the U.K.’s decision to leave the European Union are likely to affect Brazil’s prospects.

“Brexit should reduce global growth somehow and may influence Brazil,” he said, “but we still don’t know the magnitude [of the impact].”

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com

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