* Cenbank chief says working to regain investor confidence
* Tombini says economy continues to show weakness
* Inflation peaked in June; to ease further this year
BRASILIA, July 21 (Reuters) - The Brazilian government needs to be clear in its next fiscal policy steps to bolster investors’ confidence in an economy that is showing new signs of weakness, central bank chief Alexandre Tombini was quoted as saying by a local newspaper on Sunday.
In rare comments about the government’s fiscal stance, Tombini said an expected freeze in budgeted spending will be added to the bank’s calculations to make its own decisions, daily Estado de Sao Paulo quoted him as saying.
President Dilma Rousseff’s government is struggling to decide on the size of a spending freeze that was originally believed to reach up to 20 billion reais ($8.94 billion), but that local media says could now be as low as 5 billion reais.
“Whatever the government determines its has to do it with clarity, saying how they will get there,” Tombini said. “For (investors’) confidence its important that they say how they will get there.”
He said the central bank is doing its part to regain investors trust by trying to control volatility in the exchange markets and raising interest rates to battle above-target inflation.
After slashing its benchmark Selic rate to record lows over the last two years, the central bank has embarked on one of the most aggressive tightening cycles in the world, raising rates 125 basis points since April to 8.50 percent.
Tombini’s comments seem to a concerted effort by the Rousseff administration to bring back investors worried that Brazil is losing its appeal after two years of subpar growth and high inflation.
Finance Minister Guido Mantega told Reuters last week that the planned spending freeze to be announced on Monday is going to reinvigorate markets confidence.
He also said the government is ready to make “some sacrifices” to bring down inflation, which in the 12 months to June rose to 6.70 percent - its highest level in 20 months.
Like Mantega, Tombini said inflation has started to ease, peaking in June and would likely slow further throughout the year. Tombini reiterated the bank’s goal to bring annual inflation this year below the 5.84 percent posted in 2012.
Something that could help the government battle inflation is the U.S. Federal Reserve’s efforts to calm the market after expectations for an early scale-back in stimulus sparked a flight of capital from emerging-market nations. The capital outflows dragged down the value of the Brazilian real, which lifted the prices of imported goods.
Despite slowing inflation, both Mantega and Tombini agreed that the second-quarter economic expansion might be only slightly better than the results of the previous quarter when the economy grew just 0.6 percent.
Tombini acknowledged in the interview with Estado that economic data in June and July “don’t seem to be good.” He added that investment in those two months came a bit weaker than expected.
“A reversal of the confidence trend is needed for the economy to continue its gradual recovery,” he said.