Brazil Interest-Rate Futures Yields Drop as Inflation Forecast Is Reduced

Yields on Brazil’s interest-rate futures contracts fell as economists cut their year-end forecast for inflation to the lowest in three months and pared their estimate for the central bank’s benchmark borrowing costs.

The yield on the contract due in January, the most traded in Sao Paulo, declined two basis points, or 0.02 percentage point, to 10.92 percent at 8:36 a.m. New York time. It declined 12 basis points last week as the central bank raised the key lending rate to 10.75 percent from 10.25 percent, surprising 48 of 51 economists, who expected a 75-basis-point increase.

“A lot of people expected the survey to show an upward shift in inflation expectations after the central bank’s decision last week,” said Tony Volpon, a Latin America strategist at Nomura Securities in New York. “That didn’t happen, and the curve shifted lower. The big context here is that data looks weak until at least next week.”

The inflation rate will end the year at 5.35 percent, compared with a week-earlier forecast of 5.42 percent, according to the median forecast in a July 23 central bank survey of about 100 economists published today. The central bank’s eight-member board, led by Henrique Meirelles, will raise the Selic to 11.75 percent by year-end, compared with a week-earlier forecast of 12 percent, the survey shows.

The real strengthened 0.3 percent to 1.7680 per dollar, from 1.7738 at the end of last week.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net;

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