Bloomberg News

Brazil Rate Futures Yields Drop on Inflation Outlook; Real Rises

April 09, 2012

Yields on Brazilian interest-rate futures contracts fell for a third day after economists cut their inflation forecast for this year, strengthening wagers the central bank will continue to reduce borrowing costs.

Yields on the contract due in January 2014 dropped nine basis points, or 0.09 percentage point, to 9.18 percent today in Sao Paulo. The real gained 0.3 percent to 1.8179 per U.S. dollar, from 1.8228 on April 5.

Consumer prices will increase 5.06 percent this year, down from a previous estimate of 5.27 percent, according to a weekly central bank survey of about 100 economists published today. Economists predict the central bank will cut its benchmark rate to 9 percent this month, from the current 9.75 percent, according to the survey.

“The inflation forecast fell a lot, the survey was very good,” Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos, said in a telephone interview. “Inflation didn’t become the problem the market had imagined.”

Futures yields tumbled 26 basis points last week, the biggest drop in a month, after data showed consumer prices as measured by the IPCA index rose 0.21 percent in March, less than the forecasts of all 50 economists surveyed by Bloomberg.

The annual inflation rate fell to 5.24 percent, its slowest since 2010, after exceeding the upper limit of the target for eight months last year. Finance Minister Guido Mantega said the “outstanding” result opens room for more measures to stimulate the economy.

Brazil targets annual consumer price rises of 4.5 percent, plus or minus two percentage points.

Rate Outlook

“Today’s Focus survey was a reflection of the March IPCA number that surprised the market,” Mauro Schneider, an economist with Banif Banco de Investimento SA, said by phone from Sao Paulo. “With IPCA lower and the external environment weighing on the market, it’s natural that rates will fall.”

Traders are anticipating central bank President Alexandre Tombini will reduce the Selic rate by 75 basis points this month to 9 percent, and to as low as 8.75 percent by May, according to rate futures yields.

The real gained as investors bet Brazil will continue to see net foreign currency inflows, said Alfredo Barbutti, an economist at Liquidez Dtvm Ltda. in Sao Paulo. Brazil had a net foreign currency inflow of $5.74 billion in March, up from $5.71 billion in the previous month, according to data released by the central bank April 4.

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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