BRASILIA Brazil's central bank chief, Roberto Campos Neto, indicated on Monday the improvement in market conditions is paving the way for a shift in monetary policy, while more benign inflation has increased investor bets for earlier interest rate cuts.

Speaking at an event hosted by IDV, a group that brings together major retailers in Latin America's largest economy, Campos Neto said long-term inflation expectations have started to fall and the yield curve has dropped sharply, demonstrating that "the market is giving credibility to what is being done" by the central bank to reduce price pressures.

Campos Neto added that this situation "opens room for monetary policy action ahead," without specifying the timeframe for such action.

Brazil's central bank is scheduled to make its next monetary policy decision on June 21.

The central bank has consistently expressed concern about increased long-term inflation expectations to justify the need to keep its benchmark interest rate at a cycle high of 13.75%, where it has remained since September despite cooling inflation.

President Luiz Inacio Lula da Silva has criticized this policy stance, saying it hampers economic growth.

Campos Neto on Monday predicted there would likely be a negative inflation reading in June.

He projected inflation would end this year between 4.5% and 5%, lower than policymakers had initially expected. However, he said core inflation remains high.

The official inflation target for this year is 3.25%.

(Reporting by Marcela Ayres; Editing by Leslie Adler and Paul Simao)