Bloomberg News

Brazil Rate Futures Yields Fall on Bet Three-Day Jump Excessive

December 28, 2011

Dec. 27 (Bloomberg) -- Yields on Brazil’s interest-rate futures contracts fell on speculation that declines over the past three days were excessive and the central bank will keep lowering borrowing costs to spur economic growth.

Yields on the Brazilian futures contract due in January 2013 fell nine basis points, or 0.09 percentage point, to 10.09 percent at 4:08 p.m. in Sao Paulo, after a jump of 35 basis points from Dec. 22 to Dec. 26. The real fell 0.2 percent to 1.8608 per dollar, leaving it down 11 percent this year.

President Dilma Rousseff’s administration aims to boost growth to 5 percent in 2012 from an estimated 2.9 percent this year and has said there is room to use monetary policy to stimulate the economy. Yields on rate futures jumped last week after a government report showed unemployment fell to a record low and the central bank said in a quarterly inflation report that “robust” domestic demand may keep driving up consumer prices.

The market “suffered a huge correction after the inflation report, overshooting a lot,” said Roberto Simoes, head of proprietary trading at BES Investimento do Brasil. “The central bank will continue cutting. The markets went too far in the correction.”

Brazil’s central bank has cut the benchmark lending rate 150 basis points since August, to 11 percent, to shore up the economy amid the debt crisis in Europe. The next two-day policy meeting starts Jan. 17.

Inflation Target

The bank said in its inflation report last week that it sees some barriers to slowing inflation to the target of 4.5 percent, including household demand and a strong labor market. Policy makers maintained that a “moderate adjustment” in the benchmark Selic rate is “consistent with inflation converging” to their 4.5 percent target in 2012.

Consumer prices rose 6.56 percent in the year through mid- December, breaching the upper limit of the central bank’s target range for an eighth month. The central bank aims to keep inflation at 4.5 percent, plus or minus two percentage points.

Inflation will slow to 5.33 percent next year, according to the median forecast in a central bank survey of about 100 economists on Dec. 23, less than the 5.39 percent forecast the week earlier. Economists expect Brazil’s central bank to cut its key rate by 0.5 percentage point to 10.5 percent in January, and to 9.5 percent by the end of 2012 as inflation slows, the survey found.

Brazil’s unemployment rate fell to 5.2 percent last month, from 5.7 percent in October, the statistics agency said on Dec. 22.

The retail sales in the week before Christmas increased 2.8 percent from the year-earlier period, according to Serasa Experian, the Brazil unit of Experian Plc, a Dublin-based credit risk consulting firm. In the same period last year, sales rose 16 percent from 2009, Serasa said today in an e-mailed statement.

“Christmas sales were tepid,” said Eduardo Galasini, head of treasury at Banco Banif SA in Sao Paulo.

--With assistance from Andrea Jaramillo in Bogota. Editors: Richard Richtmyer, Brendan Walsh

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

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


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