Bloomberg News

Brazil Futures Yields Rise on Central Bank Minutes; Real Falls

December 09, 2011

Dec. 8 (Bloomberg) -- Yields on most Brazilian interest- rate futures contracts rose after inflation quickened in November and central bank policy makers signaled they will maintain their pace of cuts to borrowing costs, spurring traders to pare bets on deeper reductions.

Yields on the contract due in January 2013 rose seven basis points, or 0.07 percentage point, to 9.81 percent. The real fell 1.4 percent to 1.8243 per dollar, from 1.7996 yesterday.

Policy makers said they expect inflation to slow to “around” their target next year as the global crisis damps domestic activity and commodity prices, according to minutes of the central bank’s last monetary policy meeting, released today. Consumer prices rose more than analysts estimated in November, bolstering speculation the central bank won’t accelerate the pace of rate cuts, said Mauricio Nakahodo, a senior economist at CM Capital Markets in Sao Paulo.

“The minutes indicate the continuation of moderate adjustments,” Nakahodo said by phone. “The market understands that the pace of cuts is not going to intensify.”

The monetary authority last week reduced its benchmark interest rate by half a percentage point to 11 percent, the third consecutive cut to the Selic rate from 12.5 percent in August. Economic growth will slow to 3.1 percent this year, according the median estimate in a central bank survey of economists published this week, from 7.5 percent last year.

The central bank targets inflation of 4.5 percent, plus or minus two percentage points. Inflation has exceeded the upper limit of the target range since April.

Inflation Data

Consumer prices, as measured by the IPCA index, rose 0.52 percent in November, compared with a 0.43 percent increase in October, the national statistics agency said today. That exceeded the median 0.5 percent median estimate of 54 analysts surveyed by Bloomberg. Compared with a year earlier, prices increased 6.64 percent, remaining above the upper limit of the central bank’s target range for an eighth month.

The report came two days after the government said the economy shrank 0.04 percent in the third quarter from the previous three-month period, its first contraction in two years.

“Despite the contraction of demand at the margin during the third quarter, the inflation curve is yet to bend decisively down as inertial inflationary pressures remain high,” wrote Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York. “The expectation that activity will remain subdued during the remainder of the year and throughout the first half of 2012 should start to alleviate what have been so far intense demand- pull and cost-push pressure on inflation.”

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

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

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


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