Brazilian swaps traders are overestimating how soon the central bank will reverse course and raise borrowing costs from a record low, said Paulo Leme, the chief of Goldman Sachs Group Inc. (GS:US)’s offices in the country.
Policy makers are likely to keep the benchmark rate at 7.25 percent through the end of 2013, Leme said in a speech today at a Brazilian pension fund conference in Sao Paulo. Traders are betting the central bank will raise the rate, know as Selic, by 75 basis points, or 0.75 percentage point, next year, starting with a 25 basis-point increase as soon as May, swap rates show.
“I’m more dovish,” Leme said.
Brazil cut the target lending rate for a 10th straight meeting on Oct. 10, bringing it down from 12.5 percent in August 2011, to revive the slowest growth among major emerging-market economies. Keeping interest rates stable for a “sufficiently prolonged” period is the best strategy to ensure inflation converges to the country’s 4.5 percent, the central bank said in the minutes of its Oct. 9-10 meeting.
Developed nations face a “long and painful” deleveraging process that will weigh on global growth and provide room for Brazil to keep rates at record lows, Leme said.
Brazilian pension funds seeking higher returns in coming years will abandon lower-yielding government debt in favor of alternative investments in industries including infrastructure, real estate and private equity, he said.
To contact the reporter on this story: Blake Schmidt in Sao Paulo at firstname.lastname@example.org
To contact the editor responsible for this story: David Papadopoulos at email@example.com