Bloomberg News

Brazil Future Yields Rise as Bank Signals Cuts to Be ‘Moderate’

September 29, 2011

Sept. 29 (Bloomberg) -- Yields on most Brazilian interest- rate futures contracts rose after the central bank signaled it won’t accelerate rate cuts as it seeks to bring inflation back to target next year.

Yields on the futures contract due in January 2013 rose six basis points, or 0.06 percentage point, to 10.47 percent at 6 p.m. in New York. The real was little changed at 1.8403 per dollar, compared with 1.8408 yesterday. The currency has lost 13.1 percent this month, the worst performer among 25 emerging- market currencies tracked by Bloomberg.

The central bank said in its quarterly inflation report today that “moderate” adjustments in the country’s benchmark interest rate are in line with its forecast for inflation to fall to the 4.5 percent target in 2012. Traders took the comment as a signal the bank may not quicken the pace of interest-rate cuts after a 50 basis-point reduction in August, said Marcelo Gazzano, an economist with RBS Securities Inc. in Sao Paulo.

“The report suggests that the room to cut interest rates may be smaller,” Gazzano said in a telephone interview. “The central bank tries to be more hawkish.”

The central bank predicts the annual inflation rate will fall next year from 7.33 percent in mid-September as global growth slows amid the European debt crisis and U.S. economic slump. The bank also cut its 2011 growth forecast for Latin America’s biggest economy to 3.5 percent from a previous forecast of 4 percent.

October Meeting

“The monetary policy committee understands that by mitigating the effects of a more restrictive global environment in a timely manner, moderate adjustments in the basic rate are consistent with its scenario of inflation converging toward the target in 2012,” policy makers said in the inflation report.

Yields on the futures contract due in January indicate traders are betting policy makers will lower the benchmark Selic rate as much as 75 basis points at their Oct. 19 meeting. August’s cut followed five straight increases that drove the rate up 175 basis points to 12.5 percent.

--With assistance from Ye Xie in New York. Editors: Marie-France Han, David Papadopoulos

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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