The yield on the Brazilian interest-rate futures contract due in April fell the most in almost two years after the central bank raised reserve requirements on cash deposits to curb credit growth and slow inflation.
Investors pared bets the bank will need to raise lending rates to restrain price increases, with the yield on the contract due April 2011 dropping 29 basis points, or 0.29 percentage point, to 11.07 percent at 12:32 p.m. New York time. It’s the steepest decline since December 2008. Yields on the contract maturing in January 2012 fell 20 basis points to 12.04 percent, headed to the biggest drop since July 2009.
The reserve-requirement increases will remove 61 billion reais ($36.2 billion) from the economy as banks are forced to hold more capital to back consumer loans that exceed 24 months. Reserve requirements on timed 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 19 economists surveyed by Bloomberg. The rate was unchanged at 10.75 percent in the two previous meetings, after being raised by 200 basis points from a record low of 8.75 percent earlier this year.
The real gained for a fifth day, rising 0.6 percent to 1.6861 per dollar. The currency has increased 2.5 percent this week, the biggest rise among seven Latin American currencies tracked by Bloomberg.