Brazil Rate Futures Yields Fall on Slowdown Concern; Real Gains

Nov. 7 (Bloomberg) -- Yields on Brazilian interest-rate futures fell after economists cut their 2011 growth forecast for a fifth straight week, fueling speculation the central bank will act further to shore up the economy amid the global slowdown.

The yield on the contract due in January 2013 dropped seven basis points, or 0.07 percentage point, to 10.16 percent. The real gained 0.2 percent to 1.7477 per dollar, from 1.7517 on Nov. 4.

Brazil’s economy will expand 3.2 percent this year, according to the median forecast in a Nov. 4 central bank survey of about 100 economists published today, down from an estimate of 3.29 percent the previous week.

“Activity numbers in Brazil are coming in consistently bad,” said Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo. Slower growth will give “more space for the central bank to cut rates,” he said.

Economists covering Brazil cut their forecast for 2012 inflation for a third straight week, providing support for the central bank as it argues for more interest rate cuts to protect the country from a global economic slowdown.

Consumer prices will increase 5.57 percent next year, according to the median forecast in the central bank survey published today, compared with a forecast of 5.59 percent the previous week. Consumer prices, as measured by the IPCA index, will rise 6.5 percent this year, unchanged from last week’s estimate, the survey found.

The central bank has lowered the benchmark Selic rate twice since August, to 11.5 percent.

Yields on interest-rate futures contracts indicate traders are betting the central bank will lower the benchmark Selic rate by at least another 125 basis points by April.

Vehicle sales in Brazil fell to 280,567 units in October, down 7.5 percent from a year earlier and 10 percent less than in September, automakers association Anfavea said today in a statement distributed to reporters in Sao Paulo.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

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