Bloomberg News

Yields on Brazil’s Rate Futures Rise Before Inflation Report

November 23, 2011

Nov. 22 (Bloomberg) -- Yields on Brazilian interest-rate futures contracts increased before a report forecast to show inflation may be accelerating this month.

Yields on the contract due in January 2013 rose three basis points, or 0.03 percentage point, to 10.01 percent at 4:58 p.m. in Sao Paulo, the highest level in two weeks. The real was little changed at 1.8074 per dollar, from 1.8069 yesterday.

Consumer prices, as measured by the IPCA-15 index, probably increased 0.47 percent in the month through mid-November, following a rise of 0.42 percent the previous period, according to the median forecast of 40 economists surveyed by Bloomberg. The consumer credit market will pick up in the fourth quarter compared to the third quarter, according to a survey conducted by the central bank.

“Rates went up with investors positioning for the possibility that the IPCA-15 might surprise to the upside,” said Luciano Rostagno, chief strategist at West LB in Sao Paulo. “Some private price collections have shown that inflation is increasing during November” because of higher food prices, he said.

The inflation report is due for release at 9 a.m. Sao Paulo time tomorrow.

While a weak international economy is exerting a “contractionary” influence on the Brazilian economy, credit growth and a “vigorous” labor market are supporting domestic demand, the central bank said in its quarterly regional report published on its website today.

Approvals for consumer loans will rise in the October- December period from the July-September period, according to a survey of 46 financial conglomerates published by the central bank in Belo Horizonte today.

Economic Expansion

Brazil’s economy expanded 1.17 percent in September from a year earlier, its slowest pace in two years, according to the central bank’s economic activity index, which is a proxy for gross domestic product. Annual inflation fell to a three-month low of 6.97 percent in October. Policy makers target inflation of 4.5 percent, plus or minus two percentage points.

Brazilian inflation peaked in the third quarter of this year and will slow to 4.5 percent by the end of 2012, central bank Director for Economic Policy Carlos Hamilton said.

Moderate rate cuts by the central bank are consistent with the institution’s goal and inflation is slowing towards target, Hamilton said in Belo Horizonte today.

The central bank has lowered the benchmark interest rate twice since August, following five increases this year, to support growth.

“The market is to wait and see if inflation will end up above the central bank’s limit at the end of this year,” said Rostagno.

--With assistance from Josue Leonel and Telma Marotto in Sao Paulo, and Matthew Bristow, Andre Soliani and Maria Luiza Rabello in Brasilia. Editors: Glenn J. Kalinoski, Richard Richtmyer

To contact the reporters on this story: Ye Xie in New York at; Gabrielle Coppola in Sao Paulo at

To contact the editor responsible for this story: David Papadopoulos at

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