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Brazil Rate-Futures Yields Rise on Faster Inflation; Real Falls

Yields on Brazilian interest-rate futures contracts climbed the most in a week after a surprise acceleration in inflation fueled speculation the central bank may shorten its cycle of interest-rate cuts.

The yield on the contract due in January 2013, the most actively-traded today in Sao Paulo, rose nine basis points, or 0.09 percentage point, to 10.13 percent. The real fell 0.1 percent to 1.8326 per dollar, from 1.8307 yesterday.

Traders reduced bets on interest-rate cuts after consumer prices in Sao Paulo rose 0.61 percent last month, compared with 0.60 percent in November, according to the Foundation Economics Research Institute. The median estimate of 17 economists surveyed by Bloomberg was for inflation to slow to 0.47 percent.

“The jump in the index was a surprise, it came well above expectations,” Newton Rosa, chief-economist at SulAmerica Investimentos, said in a telephone interview from Sao Paulo.

There is “significant resistance” preventing inflation from slowing in Brazil as current price increases feed into future inflation, policy makers said in their quarterly inflation report published Dec. 22.

Central bankers cut Brazil’s benchmark Selic lending rate 150 basis points at the end of last year to 11 percent to shore up the economy amid the debt crisis in Europe. The next two-day policy meeting starts Jan. 17.

The Brazilian government sold an additional $75 million of its 2021 dollar bonds in Asia, according to a statement today from the Finance Ministry. Brazil sold $750 million of the bonds yesterday at a record-low yield of 3.449 percent.

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