Brazilian Rate Future Yields Climb Before Inflation Report

Yields on Brazil’s benchmark interest-rate futures rose ahead of a government report tomorrow that may show consumer price increases this month maintained the fastest pace since May.

The yield on the Brazilian interest-rate futures contract due in January 2013 rose four basis points, or 0.04 percentage point, to 9.86 percent after earlier falling as much as four basis points. The real was little changed at 1.7550 per U.S. dollar, from 1.7552 on Jan. 20. It earlier touched 1.7487 per dollar, the strongest level since Nov. 14.

Consumer prices probably increased 0.56 percent in the month through Jan. 15, matching the pace of the increase last month, according to the median forecast of 44 economists surveyed by Bloomberg. Policy makers cut the benchmark lending rate at a fourth straight meeting last week, lowering it 10.5 percent, in a bid to shore up economic growth without reigniting inflation.

“Data on inflation will renew the discussion on whether the supply shocks from food prices will ease the pressure on inflation indicators and whether there is some slowdown in the labor market,” analysts at 4Cast Inc., a consultancy firm, wrote in a note to clients.

Brazil’s real traded at the highest level since November as investors anticipated that European leaders will make progress in talks to tame the region’s debt crisis at a meeting. European officials are crafting a long-term plan to tackle the region’s debt crisis in Brussels as Greece and private bondholders said they had made progress in negotiating a debt swap during talks over the weekend in Athens.

Stock Rally

Investors also bought the real on expectations the rally in Brazil’s stock market will attract foreign investors, said Jose Carlos Amado, currency trader at Renasenca DTVM Ltda. in Sao Paulo. Brazil’s benchmark Bovespa stock index has gained 9.9 percent this year.

“The dollar is on a downward trend with this respite in Europe,” Amado said in a telephone interview. “There’s a lot of talk about inflows, particularly into equities.”

Economists covering Brazil cut their forecast for inflation this year for an eighth week. Consumer prices will increase 5.29 percent this year, according to the median forecast in a Jan. 20 central bank survey of about 100 economists published today, down from an estimate of 5.30 percent the previous week.

Consumer prices rose 6.5 percent in 2011.

Economists expect policy makers to cut the benchmark rate to 9.5 percent by the end of the year before raising it back to 10.25 percent in 2013, the survey found.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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