Yields on Brazilian interest-rate futures contracts fell to a record as President Dilma Rousseff said interest rates need to be lower, fueling bets the central bank may extend the cycle of borrowing-cost cuts.
Futures yields dropped after Rousseff’s comments in an April 30 televised address encouraged speculation that she is close to changing rules on savings accounts to facilitate cuts in the 9 percent benchmark Selic rate. Brazil’s real dropped to the lowest level in five months as an increase in euro-area unemployment discouraged demand for higher-yielding assets.
“More than a decline in the basic rate, Dilma wants to force a drop in bank spreads,” Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos, said in a telephone interview. “If the government changes savings rules, it will be a warning that the Selic is going to fall more.”
The yield on the futures contract due in January 2014 fell 14 basis points, or 0.14 percentage point, to 8.62 percent at 12:02 p.m. in Sao Paulo. It earlier touched 8.61 percent, the record low on an intraday basis.
Brazilian law requires minimum returns on savings accounts, known as poupanca, spurring concern further reductions by the central bank will drive investors out of government bonds and into bank deposits.
The real depreciated 0.3 percent to 1.9137 per U.S. dollar after touching 1.9149, the weakest since Nov. 25. Markets were closed yesterday for a national holiday.
Policy makers lowered the benchmark lending rate last month by 75 basis points to 9 percent, near the record low of 8.75 percent. In the minutes to its April 17-18 meeting, the bank said that given the delayed effects of rate cuts carried out so far, any further cuts should be “conducted with parsimony.”
Rousseff is prodding Brazilian lenders to reduce borrowing costs after encouraging the central bank to trim the country’s benchmark interest rate to revive economic growth.
Banco do Brasil SA (BBAS3), Latin America’s largest bank by assets, and Caixa said last month they will cut their loan rates by more than half to increase access to credit and wrest market share from private banks.
Itau Unibanco SA and Banco Bradesco AS also said last month they were cutting rates charged on loans to individuals and small and medium-sized companies.
“It’s inadmissible that Brazil, which has one of the most solid and profitable financial systems, continues to have the highest interest rates in the world,” Rousseff said in her televised address this week.
Traders are betting that central bank President Alexandre Tombini will reduce the target lending rate by 25 basis points to 8.75 percent at this month’s monetary policy meeting and are divided on the possibility of another 25 basis point cut in July, according to rate futures yields.
The real weakened today as euro-region unemployment increased to a 15-year high and manufacturing contracted for a ninth month, encouraging demand for a refuge in the dollar.
Speculation that Tombini will keep cutting rates and intervening to weaken the real also helped strengthen the U.S. currency, according to Deives Ribeiro, head of currency trading at Fair Corretora de Cambio e Valores in Sao Paulo.
“There is already a movement of global appreciation of the dollar because of the deterioration of the global scenario,” Perfeito said. “The government is driving this movement even further.”
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