Bloomberg News

Brazil Futures Yields Fall as Inflation Slows; Real Advances

February 09, 2012

Feb. 8 (Bloomberg) -- Yields on Brazilian interest-rate futures contracts touched a record low after a report showing inflation slowed more than forecast added to speculation that policy makers will cut borrowing costs below 10 percent.

Yields on the contract due January 2013 fell six basis points, or 0.06 percentage point, to 9.39 percent, after earlier declining to a record 9.38 percent. The real gained 0.3 percent to 1.7206 per dollar, even as the central bank bought dollars in the forwards market for the second time in less than a week in an effort to stem its rally.

Consumer prices as measured by the IPC-S index rose 0.46 percent in the 30 days through Feb. 7, after climbing 0.81 percent in the previous period, the Getulio Vargas Foundation said today. The increase was less than the 0.65 percent median estimate of 21 economists surveyed by Bloomberg.

“Inflation figures were very comforting,” Newton Rosa, chief economist at SulAmerica Investimentos, said by phone from Sao Paulo. “Investors are sure the central bank will lower the benchmark lending rate to a single-digit level.”

Policy makers have cut the benchmark rate 200 basis points since August to 10.5 percent. They signaled in the minutes of their January meeting that they are likely to trim the lending rate below 10 percent this year.

The central bank said it bought an unspecified amount of dollars in the forwards market today at 1.7339 reais for liquidation on March 21. The real’s reaction to the intervention was limited because investors are moving dollars into the country, said Jose Carlos Amado, a currency trader at Renasensca DTVM Ltda.

Real’s Rally

“The market continues having inflows,” Amado said by phone from Sao Paulo. “The central bank’s auction tried to absorb future inflows, but the market has flows right now.”

Policy makers bought dollars in the forwards market on Feb. 3 for the first time since July and made purchases in the spot market on Feb. 6 in the first such transaction since September.

The real has jumped 8.5 percent this year, the second most after the Mexican peso among the 16 major currencies traded against the dollar. Finance Minister Guido Mantega said Jan. 23 that the government will keep implementing policies aimed at preventing currency gains in a bid to ensure economic growth of at least 4 percent this year.

The government raised taxes on overseas loans and foreign- exchange derivatives last year after tripling the so-called IOF tax on foreign investors’ fixed-income purchases to 6 percent in 2010 in a bid to stem the real’s gains and shore up exports.

--With assistance from Gabrielle Coppola in Sao Paulo. Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporters on this story: Josue Leonel in Sao Paulo at; Ney Hayashi in Sao Paulo at

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

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