Brazil Rate-Futures Yields Climb as Inflation Forecast Raised

Yields on Brazilian interest-rate futures contracts advanced for the first time in five days after economists raised their inflation forecast for a third week.

The yield on the contract due in January 2013 jumped four basis points, or 0.04 percentage point, to 9.07 percent at 11:17 a.m. in Sao Paulo. Last week it fell to a record low 9.03 percent. The real was little changed at 1.7306 per U.S. dollar, from 1.7304 on March 2.

Futures yields climbed after economists said consumer prices will increase 5.2 percent next year, according to the median forecast in a March 2 central bank survey of about 100 analysts published today, up from an estimate of 5.11 percent the previous week and 5.02 percent two weeks ago. Policy makers signaled in the minutes of their January meeting that they’re likely to reduce the benchmark rate below 10 percent this year.

“The survey reflects a preoccupation in the market with inflation,” Eduardo Galasini, head of treasury at Banco Banif, said by phone from Sao Paulo.

Annual inflation slowed to 6.22 percent in January, after exceeding the upper limit of the target for eight months last year. Brazil targets annual consumer price rises of 4.5 percent, plus or minus two percentage points.

Brazil is adopting a policy mix that has a dual goal of fueling economic growth at the same time as it brings inflation back to target, central bank President Alexandre Tombini said in Senate testimony last week.

Selic Outlook

Tombini has trimmed benchmark borrowing costs by 200 basis points since August. Traders are anticipating the central bank will reduce the Selic rate by 50 basis points at this week’s monetary policy meeting tomorrow and March 7, futures yields show.

The real was little changed after earlier falling as much as 0.3 percent after China, Brazil’s biggest trading partner, pared its economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are determined to cut reliance on exports and capital spending in favor of consumption.

China’s announcement was overshadowed by investor speculation that recent currency measures taken by the government will fail to stem inflows driven by lower interest rates abroad, Galasini said.

“There’s a lot of money in the world, and it either goes to U.S. Treasury bonds or to the Brazilian market,” he said. “The central bank is trying to control the real, but the IOF measure doesn’t solve the problem.”

The government said March 1 that it will tax foreign loans and bonds by local companies that mature in three years or less. That same day, the central bank said exporters will start paying a 6 percent tax on some foreign loans. Policy makers have also boosted dollar purchases in foreign-exchange markets.

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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