Brazil April Rate-Future Drops Most Since May on Bank Measure

Brazil’s yield on interest-rate futures contracts declined after the central bank raised reserve requirements on cash deposits to curb credit growth and slow inflation.

Investors pared bets the central bank will need to raise its benchmark lending rate to restrain price increases, with the yield on the contract due April 2011 dropping 19 basis points, the most since May 2009, to 11.17 percent at 6:52 a.m. in New York. For the contract maturing in October next year, the yield fell 14 basis points to 11.94 percent, the most since Aug. 16. Yields on most other contracts also narrowed.

The reserve-requirement increases will remove 61 billion reais ($36 billion) from the economy as banks are forced to hold more capital to back consumer loans that exceed 24 months. Reserve requirements on time deposits will increase to 20 percent from 15 percent and reserve for cash deposits will go to 12 percent from 8 percent, according to a statement distributed in Brasilia today.

“The measures show that a part of monetary policy will be done through credit,” Marina Santos, chief economist at Sao Paulo-based Squanto Investimentos, which oversees $250 million in assets, said in a telephone interview.

The steps bring reserve requirements to a level that is slightly tighter than before the 2008 global credit crunch and will help slow inflation, central bank President Henrique Meirelles told reporters. Consumer prices as measured by the IPC-S index rose 1 percent in November, the Getulio Vargas Foundation said Dec. 1. That’s more than the 0.9 percent median estimate of 16 economists surveyed by Bloomberg.

The benchmark Selic interest rate may remain at 10.75 percent at the central bank’s Dec. 7-8 meeting, according to the median estimate of 15 economists surveyed by Bloomberg. The rate was unchanged at 10.75 percent in their three previous meetings, after being raised by 200 basis points from a record low of 8.75 percent earlier this year.

The real snapped four days of gains, weakening 0.2 percent to 1.6990 per dollar.

To contact the reporter on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: Francisco Marcelino at mdeoliveira@bloomberg.net

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