[TotallyOz]

March 8 (Bloomberg) -- Brazilian economists raised their 2010 inflation forecast for a seventh straight week, increasing pressure for the central bank to raise the benchmark interest rate as early as next week.

Economists covering Latin America’s biggest economy expect the benchmark IPCA price index to rise to 4.99 percent in 2010, up from last week’s forecast of 4.91 percent, according to the median estimate in a March 5 central bank survey of about 100 economists published today. The annual rate has exceeded the bank’s 4.5 percent target in each of the past two months.

Rising inflation expectations are forcing policy makers to unwind the stimulus put in place amid the credit crunch to ensure that rising consumer demand won’t stoke inflation, said Zeina Latif, chief economist at ING Bank in Sao Paulo. The central bank has kept the benchmark interest rate at a record low of 8.75 percent since July.

“The central bank knows it will need to raise rates, so it’s best to start raising sooner than later,” said Latif, who expects the so-called Selic rate to be lifted at the bank’s March 17 meeting. “Additional economic stimulus increases the risk for a deterioration in the inflation outlook.”

The yield on the interest rate future contract due January 2011, the most traded on Sao Paulo’s BM&F exchange, rose as much as three basis points, or 0.03 percentage point, to 10.44 percent. At 8:46 a.m. New York time, the real weakened 0.2 percent to 1.7810 per dollar from 1.7782 on March 3.

Economists expect inflation will slow to 4.5 percent next year, down from last week’s estimate of 4.53 percent, the central bank’s survey shows.

“The forecast for 2011 inflation will remain anchored around the target should the central bank increase interest rates and continue to tighten reserve requirements,” said Caio Megale, an economist and partner at Mau Sekular Investimentos in Sao Paulo.

Policy makers on Feb. 25 increased by 71 billion reais ($40 billion) the amount lenders must keep on deposit at the central bank as part of a plan to dial back measure taken during the credit crunch.





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