Brazilian Rate Futures Yields Drop for Sixth Week; Real Gains

Yields on Brazilian interest-rate futures contracts declined for a sixth week as traders stepped up bets for lower borrowing costs after a report showed consumer prices increased less than forecast this month.

The yield on the contract due in January 2013 fell four basis points, or 0.04 percentage point, to 9.18 percent today, bringing the weekly decline to 11 basis points. The real rose 0.2 percent to 1.7139 per dollar, extending its gain this week to 0.5 percent.

Consumer prices as measured by the IPCA-15 index increased 0.53 percent through mid-February, the national statistics agency said today, trailing the 0.56 percent median forecast of 46 economists surveyed by Bloomberg. The second preview of the IGP-M index measuring consumer, wholesale and construction prices fell 0.11 percent this month through yesterday, more than the 0.02 percent median estimate of 20 economists.

“Food is pushing the consumer price index lower, and soft commodities are falling,” helping drive wholesale prices down, Newton Rosa, chief economist at SulAmerica Investimentos, said by phone from Sao Paulo. “This makes the central bank more comfortable” about lowering the benchmark lending rate.

Central bank President Alexandre Tombini has reduced the overnight rate by 200 basis points, or two percentage points, since August to 10.5 percent to bolster growth in Latin America’s biggest economy. Interest-rate futures contracts showed traders are expecting a further cut to as low as 9 percent by August, according to data compiled by Bloomberg.

Inflation Measures

President Dilma Rousseff’s bid to lower the highest inflation-adjusted interest rates in the Group of 20 means she’s likely to favor credit measures other than borrowing-cost increases to tame rising prices, said Marcelo Salomon, co-head of Latin America’s economics at Barclays Plc. Brazil’s real rate is at 4.28 percent, compared with 0.45 percent in Mexico and 1.15 percent in Australia, according to data compiled by Bloomberg.

The central bank raised reserve and capital requirements in December 2010 to slow lending growth, removing at least 61 billion reais ($36 billion) from circulation. Analysts estimated the credit measures were equivalent to lifting the benchmark rate by 0.75 percentage point, according to the median estimate in a central bank survey published in February 2010.

The government this week announced a plan to cut 55 billion reais from this year’s budget proposal as part of a strategy to help slow inflation and allow the central bank to reduce borrowing costs.

Brazil’s unemployment rate fell to 5.5 percent in January from 6.1 percent a year earlier, the national statistics agency said today. The jobless rate was a record low 4.7 percent in December.

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