Jan. 22 (Bloomberg) -- Brazil's currency may rise from a two- week low against the dollar after the central bank unexpectedly kept its benchmark rate unchanged at 16.5 percent.

``This may encourage a whole new round of people to invest in Brazil,'' said Doug Smith, chief economist for the Americas at Standard Chartered Bank in New York. ``If you expect dollar flows to remain high, the central bank will have to buy a whole lot more dollars.''

The bank kept its benchmark-lending rate at 16.5 percent, ending seven months of cuts, after inflation accelerated. None of the 33 economists surveyed by Bloomberg forecast the bank would leave the overnight rate unchanged. The median forecast was for the bank to reduce the rate 0.5 percentage-point to ensure a recovery in South America's biggest economy.

The real yesterday weakened for the fourth day in five, losing 0.1 percent to 2.8400 per dollar, its lowest closing level since Jan. 8, paring its gain in 2004 to 1.8 percent, the fifth- best performance against the dollar among the 16 most-traded currencies.

The central bank said in a statement it wants to gauge the effect of reducing the overnight target rate by 10 percentage points since June on economic growth and inflation. Consumer prices in Sao Paulo rose 0.7 percent between mid-December and mid- January, up from 0.4 percent the previous month, according to the University of Sao Paulo Economic Research Foundation.

``It shows the central bank won't be lenient with inflation,'' said Marcelo Salomon chief economist at Uniao de Bancos Brasileiros SA in Sao Paulo in a televised interview with Bloomberg. ``That should prompt bonds to fall.''

Brazil's benchmark 8 percent bond maturing in 2014 was unchanged at 101, leaving the yield at 7.74 percent, according to J.P. Morgan Chase & Co. at 5:44 a.m. New York time. The 11 percent bond that matures in 2040 rose for a second day in three, adding 0.90 cent on the dollar to 116.15, paring the yield to 8.75 percent, according to J.P. Morgan Chase.

Last Updated: January 22, 2004 05:48 EST