Oct. 3 (Bloomberg) -- Yields on benchmark Brazilian interest-rate futures contracts fell to the lowest level since 2007 on speculation President Dilma Rousseff wants the central bank to cut benchmark rates to below 10 percent next year.
Yields on the futures contract due in January 2013, the most actively-traded in Sao Paulo today, fell 19 basis points, or 0.19 percentage point, to 10.14 percent at 5 p.m. New York time. It earlier reached 10.04 percent, the lowest level since June 2007. The real fell 0.6 percent to 1.8911 per dollar, from 1.8793 on Sept. 30.
Rousseff wants the benchmark rate, known as Selic, to fall to 9 percent next year, newspaper Estado do S. Paulo reported yesterday, citing three government officials that it didn’t identify. The central bank lowered the Selic rate 50 basis points to 12 percent on Aug. 31 after five straight increases. A Markit Economics report showed today that Brazil’s manufacturing sector shrank in September, a fourth consecutive contraction.
“You saw a little bit of the market seeing political pressure from the government on the central bank, so the speculation that the central bank may accelerate rate cuts returned,” Solange Srour, chief economist at BNY Mellon ARX Investimentos, said in a telephone interview from Rio de Janeiro. “The external environment continues to be very negative.”
Interest rate futures contracts show traders expect the central bank to lower rates 175 basis points by the end of this year to 10.25 percent, according to data compiled by Bloomberg. Traders expected the rates to fall to about 10 percent by the end of 2012.
Economists expect the benchmark Selic rate to end this year at 11 percent, according to the median forecast in a Sept. 30 central bank survey of about 100 economists published today. Their forecast for the 2012 year-end Selic fell to 10.5 percent, from 10.75 percent the previous week.
Policy makers will carry out interest-rate reductions with caution to keep inflation from affecting consumption by the new middle class, Estado reported. A government press official in Brasilia -- who, citing policy, asked not to be named when contacted by Bloomberg News -- said the government wouldn’t comment on the report.
Rousseff last week said Brazil must “take advantage of” the global slowdown to lower its benchmark interest rate, which is the highest in the Group of 20 nations.
“There is a strong desire to cut interest rates,” Andre Perfeito, an economist with Gradual Investimentos, said in a telephone interview from Sao Paulo. “That is very clear.”
HSBC Purchasing Managers’ Index for Brazil’s manufacturing sector fell to 45.5 in September, the lowest level since April 2009, London-based Markit Economics said today. A reading below 50 indicates contraction.
Commodities fell to a 10-month low with the Standard & Poor’s GSCI Spot Index dropping 0.9 percent. Brazil exports iron ore, sugar, soybeans and coffee, among other commodities.
Brazil’s “ideal” interest rate after inflation should be between 2 percent and 3 percent, Finance Minister Guido Mantega told reporters in Sao Paulo today.
“What we want are interest rates similar to other emerging markets,” Mantega told reporters today in Sao Paulo. Mantega said it was up to the central bank to decide when the “adequate” time is to cut interest rates, though the government is doing its part to lower borrowing costs by containing spending.
Analysts covering Brazil’s economy reduced their forecast for 12-month inflation for the first time in six weeks, bolstering the central bank’s policy of reducing interest rates in the face of a worsening global economic outlook.
Consumer prices will rise 5.71 percent in the next 12 months, according to the economists surveyed by the central bank. The forecast was down from 5.76 percent the previous week that was the highest this year.
The bank said last week in its quarterly inflation report that “moderate” adjustments in the key rate won’t compromise its goal of bringing inflation to the 4.5 percent target in 2012.
Brazil’s central bank said it accepted 34,150 bids for currency swap contracts from 106,975 offered today, according to a statement published on the central bank’s website. The central bank said it will auction as many as 90,525 currency swap contracts tomorrow. The results will be announced after 10:45 a.m. New York time.
The central bank entered the derivatives market on Sept. 22 for the first time in two years to prop up the currency after it reached a two-year low of 1.9549.
--With assistance from Joshua Goodman in Rio de Janeiro and Ye Xie in New York. Editors: Glenn J. Kalinoski, Richard Richtmyer
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