UPDATE 2-Brazil c.bank sees recovery complicated by U.S., Europe

* Recovery complicated by U.S., Europe economies

* Incoming govt to largely maintain previous policies

* To keep inflation in check

(Adds quotes and details)

By James Pomfret

HONG KONG, Nov 30 (BestGrowthStock) – Brazil, Latin America’s
largest economy, expects a more complicated recovery due to
uncertainties in U.S. and European economies, the country’s
deputy central bank governor, Luiz Awazu Pereira da Silva,
said on Tuesday.

“We are living now in a more complicated period for
recovery
out of the crisis,” da Silva told a Hong Kong business forum.

Da Silva noted the complex external environment from
Europe’s debt woes and waves of hot money bursting into
emerging markets from the U.S. — were giving rise to an
“impossible trinity” of macro-economic challenges for many
emerging market economies like Brazil, in keeping capital
accounts open, preserving monetary independence and keeping
exchange rates stable.

“It appears the situation is unresolved of capital inflows
… playing a greater role in setting rates than fundamentals.”

Brazil, whose economy and per capital GDP has galloped over
the past decade on strong export and investment growth, is now
facing rising consumer prices and inflation expectations that
are turning up the heat on Brazil’s central bank for an
interest rate hike to bring inflation back to the middle of
the target range.

“The current cycle is producing some increase in observed
inflation and expectations” said da Silva, who largely avoided
direct comment on interest rates except to say authorities
would
“carefully observe” the situation.

“The pragmatic approach for many emerging markets and
Brazil
is using, is to keep inflation in check using demand management
tools and at the same time use macro-prudential tools to avoid
excessive credit growth,” added the former World Bank economist.

The central bank next week is expected to adapt its
language
to open the way for raising its Selic interest rate, which is
now at 10.75 percent , one of the world’s highest.

On Brazil’s incoming government, led by President-elect
Dilma Rousseff, which has the tricky task of prolonging
Brazil’s golden economic run, he said Brazil would largely
maintain the
macro-economic framework and sound policies of the previous
administration, though these would be “fine tuned” as necessary.

On the fiscal side, Da Silva noted a need to bolster
domestic savings rates to feed higher levels of investment as
well as improving the quality of public spending to bolster
efficiences.

The incoming Roussef administration has spoken of making
“substantial” and lasting budget cuts, a move that analysts say
could assuage some pressure for higher interest rates.

The deputy central bank governor spoke in place of
out-going
boss Henrique Meirelles, the longest serving central bank
president in Brazilian history. Meirelles will be replaced by a
veteran central bank staffer, Alexandre Tombini.

(Reporting by James Pomfret; Editing by Ken Wills)

UPDATE 2-Brazil c.bank sees recovery complicated by U.S., Europe