Brazil Interest Rate Futures Jump Most in Month on Rouseff Budget Concern

Yields on Brazil’s interest-rate futures contracts jumped the most in a month as investors speculated leading presidential candidate Dilma Rousseff may not reduce spending and cut the government’s inflation target if elected in October.

The yield on the contract due in January 2012 jumped 10 basis points, or 0.10 percentage point, to 11.25 percent, the biggest increase since July 23, according to data compiled by Bloomberg.

Rousseff said it isn’t advisable to reduce Brazil’s 4.5 percent inflation target because the international economy could undergo a depression while Brazil’s economy could grow steadily, G1 newswire reported yesterday. Folha de S. Paulo reported Aug. 23 that Rousseff would cut the country’s 2011-2014 inflation rate, without saying where it obtained the information.

“Dilma’s lead is strengthening and people are trying to position for the incoming government,” said Eduardo Suarez, an emerging-markets strategist at Royal Bank of Canada in Toronto. “Today the view that she wouldn’t use more fiscal restraint won, and that led rates higher.”

Inflation in the twelve months through mid-August slowed to 4.44 percent from 4.74 percent in mid-July, according to the national statistical agency.

Rousseff, the chosen successor of Brazilian President Luiz Inacio Lula da Silva, opened a 17-point lead over rival presidential candidate Jose Serra, Folha de S. Paulo reported, citing a poll by Datafolha.

The real rose for the first time in five days, strengthening 0.4 percent to 1.7635 per dollar, from 1.7705 on Aug. 24.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net

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