Bloomberg News

Brazil Futures Yields Fall on Decline in Prices; Real Weakens

December 30, 2011

Dec. 29 (Bloomberg) -- Yields on Brazil’s interest-rate futures contracts dropped to a one-week low after a report showing the country’s broadest index of prices fell this month boosted speculation the central bank will keep lowering borrowing costs to spur economic growth.

The yield on the contract due in January 2013 fell one basis point, or 0.01 percentage point, to 10.05 percent at 11:25 a.m. in Sao Paulo, headed for the lowest closing price since Dec. 22. The real dropped 0.4 percent to 1.8802 per U.S. dollar, from 1.8736 yesterday.

Brazil’s IGP-M index of wholesale, construction and consumer prices fell in December for the first time in five months, lending support to the central bank’s strategy of cutting interest rates to shore up growth, said Maristella Ansanelli, the chief economist at Banco Fibra SA in Sao Paulo.

“The IGP-M data is good,” she said. “It suggests inflation will be lower in January.”

The index dropped 0.12 percent in December from November, when it climbed 0.5 percent, the Getulio Vargas Foundation said on its website today. The median estimate of 22 analysts surveyed by Bloomberg was for a decline of 0.05 percent.

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.

Growth Goals

Gross domestic product shrank 0.04 percent in the third quarter from the previous three months, the first contraction since the first quarter of 2009. President Dilma Rousseff ’s administration is using a mix of tax cuts, interest rate reductions and looser bank lending requirements to revive the economy, aiming to boost growth to 5 percent in 2012 from an estimated 2.9 percent this year.

Consumer prices, as measured by the IPCA-15 index, rose 6.56 percent through mid-December, breaching the upper limit of the central bank’s target range of 2.5 percent and 6.5 percent for an eight month.

Brazil’s real is down 11 percent this year, headed for its biggest annual loss since 2008, amid speculation Europe’s sovereign debt crisis will continue to reduce foreign investment in Latin America’s biggest economy.

With markets closed tomorrow in Brazil, today is the last trading day of 2011.

Brazil recorded foreign-currency outflows of $2.1 billion from trade and investment this month, the central bank said yesterday, the third straight month capital left the country. The European Central Bank said yesterday its balance sheet soared to a record 2.73 trillion euros ($3.51 trillion) after lending to banks to ease a shortage of capital.

“The market is very sensitive to negative news on the European situation,” Jose Carlos Amado, a currency trader at Renascenca DTVM Ltda. in Sao Paulo, said in a telephone interview.

--Editors: Richard Richtmyer, Brendan Walsh

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

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


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