Brazil Interest Rate Futures Yields Decline a Third Week on Growth Outlook

Yields on Brazil’s interest-rate futures contracts headed for a third weekly decline as the central bank said economic growth may have slowed, helping to contain inflation and boosting speculation policy makers will slow the pace of interest-rate increases.

The yield on the contract due in January, the most traded in Sao Paulo, fell five basis points, or 0.05 percentage point, to a three-month low of 10.77 percent at 8:52 a.m. New York time. The yield has dropped 17 basis points this week. It last fell for three straight weeks in the period ended July 17, 2009.

“The move began before the bank meeting, picked up after the rate decision, and continued after the dovish statements this week,” said Flavia Cattan-Naslausky, a strategist with RBS Securities Inc. in Stamford, Connecticut. “Now the expansion of growth has to consolidate to validate the central bank’s position.”

A slowing Chinese economy, and doubts about the strength of the U.S. recovery, is helping to fight inflation that’s been above the government’s 4.5 percent target since January, the bank said yesterday in the minutes of its July 20-21 meeting. A drop in the inflation rate and evidence Latin America’s biggest economy is slowing prompted the central bank to reduce the pace of interest rate increases last week.

The real fell 0.3 percent to 1.7629 per dollar, from 1.7580 yesterday. The currency has climbed 0.7 percent this week.

To contact the reporters on this story: Boris Korby in New York at Bkorby1@bloomberg.net;

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