UPDATE 1-Brazil's Guillen rattled by inflation expectations stuck at 3.5%

(Recasts throughout)

SAO PAULO, Nov 9 (Reuters) - Brazil's central bank director Diogo Guillen said on Thursday that longer-term inflation expectations stuck at around 3.5% bother the monetary authority, as they make it costlier for the bank to bring the consumer price index back to its target.

"The scenario is so much better when the expectations are anchored," Guillen said at an event hosted by investment bank Itau BBA.

The central bank's weekly

FOCUS poll

surveying private economists has showed their expectations for inflation in 2025 and 2026 at 3.5% for months now, while forecasts for next year's inflation have stood at around 3.9%.

That is higher than the official 3% goal the central bank has, although within its target range as it has a tolerance band of plus or minus 1.5 percentage points.

Having inflation expectations de-anchored for too long has greater impacts than when that happens for a small period of time, Guillen noted, as it creates a sense that "projections are indeed above the target".

Brazil's central bank kicked off a monetary easing

cycle

in August as inflation cooled, lowering its benchmark interest rate by 50 basis points in its three latest meetings to the current 12.25% and signaling more of the same ahead.

Guillen reiterated it was be important for the government to remain committed to its fiscal targets, saying that would contribute to re-anchoring inflation expectations while also generating lower risk premia and long-term interest rates.

His remarks came amid recent

chatter

that President Luiz Inacio Lula da Silva's administration was considering tweaking its goal of erasing the public deficit next year to make room for a small deficit.

Sources familiar with the matter told Reuters earlier this week that the government would not ask Congress to modify the current goal, at least for now, giving its finance minister more time to negotiate measures to boost revenue. (Reporting by Gabriel Araujo and Fernando Cardoso; Editing by Steven Grattan)