Bloomberg News

Brazil Futures Yields Jump as Tombini Signals Cycle End at 9%

March 15, 2012

Yields on Brazilian interest-rate futures contracts surged the most in almost three years after the central bank signaled it will refrain from lowering borrowing costs below 9 percent, prompting traders to reverse wagers on more aggressive cuts.

The yield on the contract due in January 2013 jumped 25 basis points, or 0.25 percentage point, to 8.92 percent at 9:16 a.m. in Sao Paulo. It was the biggest increase since June 2009.

Brazil’s central bank said it sees interest rates declining to levels just above the record low of 8.75 percent as inflation in Latin America’s biggest economy remains under control. Policy makers, in the minutes of their March 6-7 meeting, said they saw a “high probability” of the benchmark Selic rate falling to “levels slightly above the historical lows and stabilizing at those levels.”

“Since the Selic went to 8.75 percent in 2009, apparently the central bank wants to say that now it’s going to stop at 9 percent,” Ures Folchini, head of fixed-income at Banco West LB do Brasil SA, said by phone from Sao Paulo. “The central bank moved up the 75 basis-point cut to arrive at the end of the cycle more quickly.”

The real advanced 0.4 percent to 1.7964 per U.S. dollar, from 1.8044 yesterday.

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

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


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