Bloomberg News

Brazil Real Snaps Two-Day Gain on Europe; Rate Futures Rise

January 12, 2012

Jan. 11 (Bloomberg) -- Brazil’s real declined, snapping the biggest two-day gain since October, amid concern the European debt crisis is worsening.

The real weakened 0.2 percent to 1.8025 per U.S. dollar, from 1.7996 yesterday, ending the biggest two-day rally since Oct. 28.

Investors are speculating that the European Central Bank won’t announce any new measures at a policy meeting tomorrow to stem the region’s sovereign-debt crisis. Prices, as measured by the first preview of the IGP-M report, fell 0.01 percent in January, the Rio de Janeiro-based Getulio Vargas Foundation said today. The median estimate of 13 analysts surveyed by Bloomberg was for an increase of 0.1 percent.

“Inflation is converging to the central bank’s outlook,” Mauricio Junqueira, who helps oversee about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview. “That means at least two more cuts of 50 basis points, and the possibility of more.”

Consumer prices rose 6.5 percent in 2011, just within the upper limit of the government’s targeted range of 2.5 percent to 6.5 percent, according to the national statistics agency.

Since March, policy makers have repeatedly pledged to slow inflation to a 4.5 percent pace by the end of 2012, while saying that the cost of doing so in 2011 would be “too high.”

The yield on the interest-rate futures contract due in January 2013 rose one basis point, or 0.01 percentage point, to 10.01 percent. The yields reversed an earlier decline of as much as five basis points after U.S. stocks erased losses.

Policy makers have cut the benchmark lending rate 150 basis points since August to 11 percent to shore up the economy. Traders are wagering central bank President Alexandre Tombini will reduce the Selic rate to as low as 10 percent by May, according to interest-rate futures yields.

The next two-day policy meeting starts Jan. 17.

--With assistance from Stephen Kirkland in London. Editors: Richard Richtmyer, Brendan Walsh

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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