Bloomberg News

Brazil Futures Yields Rise as Economists Lift Inflation Forecast

April 16, 2012

Yields on Brazilian interest-rate futures contracts climbed after economists increased their inflation forecasts for 2012, damping speculation the central bank may cut rates to below 9 percent this year.

The yield on the contract due in January 2014 rose five basis points, or 0.05 percentage point, to 9.16 percent at 2:54 p.m. in Sao Paulo. The real appreciated almost 0.1 percent to 1.8371 per U.S. dollar.

“The data released today were not positive for inflation,” Andre Perfeito, chief economist in Sao Paulo at Gradual Investimentos, said in a telephone interview. “The central bank made it explicit in the last Copom meeting that there’s not much more room for cuts.”

Consumer prices will increase 5.08 percent this year, compared with a previous estimate of 5.06 percent, according to a weekly central bank survey of about 100 economists published today. Prices will rise 5.47 percent over the next 12 months, up from a previous estimate of 5.44 percent, according to the survey. The government targets annual consumer-price increases of 4.5 percent, plus or minus 2 percentage points.

Brazil’s seasonally adjusted economic activity index, a proxy for gross domestic product, fell 0.23 percent in February. Analysts expected a 0.3 percent decline, according to the median estimate in a Bloomberg News survey of 27 economists.

U.S. Retail

While higher inflation estimates were offset by signs Brazil’s economy is decelerating, stronger-than-expected March retail sales in the U.S. helped keep futures yields higher, said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo, said in a telephone interview.

“The central bank has its arguments, especially with respect to the external market, as justification for the reduction in interest rates,” Serrano said. “As long as we see a recovery abroad, this counts as less space for rate cuts in the short term.”

The central bank will reduce the benchmark interest rate this week for a sixth straight time to 9 percent, according to the median forecast of 45 economists in a Bloomberg News survey. Policy makers have reduced the benchmark rate 275 basis points since August to 9.75 percent.

President Dilma Rousseff’s administration has reduced taxes on consumer goods, increased funding to the state development bank and pledged to boost public investments to ensure economic growth of 4.5 percent this year.

Analysts forecast gross domestic product will rise 3.2 percent this year, compared with a 2.7 percent increase in 2011, according to the median forecast in the central bank survey published today. In 2010, the economy expanded 7.5 percent.

Soybean growers in Brazil, the world’s second-largest producer after the U.S., harvested 86 percent of the current crop as of April 13, crop researcher AgRural Commodities Agricolas said in an e-mailed report today.

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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