Brazil December Retail Sales Exceed Forecasts on Lower Rates

Brazilian retail sales rose more than analysts expected in December, adding to evidence that Latin America’s biggest economy rebounded from a contraction in the third quarter.

Sales volume rose 0.3 percent from November, the national statistics agency said today in Rio de Janeiro. The median estimate of 44 analysts surveyed by Bloomberg was for a gain of 0.1 percent. Sales climbed 6.7 percent from a year earlier.

Since August, President Dilma Rousseff’s administration has reduced borrowing costs, cut taxes on consumer goods and lifted curbs on credit to shore up economic growth in the world’s second biggest emerging market after China. The central bank has signaled it will reduce the benchmark interest rate to less than 10 percent as the government seeks economic growth of 4.5 percent this year.

“Domestic demand is still quite robust, driven by a positive labor market,” Luciano Rostagno, chief strategist with Banco WestLB do Brasil SA, said by telephone from Sao Paulo. “This will keep inflation at a high level despite the falling trend we’re seeing.”

Lower borrowing costs as well as a reduction in the industrial production tax on select consumer goods also fueled demand, Rostagno said.

The yield on the interest rate futures contract maturing in January 2014, the most-traded today, declined three basis points, or 0.03 percentage point, to 9.67 percent at 10:16 a.m. in Brasilia. The real gained 0.2 percent 1.7137 per dollar.

Rate Outlook

Traders are wagering that the central bank will cut its benchmark interest rate for a fifth straight meeting next month, to 10 percent, according to Bloomberg estimates based on interest rate futures yields.

The broader retail index, which includes the sale of cars and construction materials, increased 1.6 percent in December from the previous month, the statistics agency said.

Furniture and home appliance sales rose 2.6 percent, and sales of computer and telecommunications equipment jumped 6.9 percent.

Brazil’s economy contracted in the third quarter for the first time in more than two years. In December, the government cut taxes on white goods including stoves, refrigerators and energy-efficient home appliances, as well as on some food staples. Record low unemployment coupled with the government measures will ensure retail sales will continue to expand this year, Jankiel Santos, chief economist at Espirito Santo Investment Bank, said in a phone interview from Sao Paulo.

The unemployment rate fell to a record low 4.7 percent in December.

Annual inflation slowed for a fourth straight month in January, to 6.22 percent. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

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