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quinta-feira, junho 18, 2009

Brazil - The New Era of Interest Rate Levels

Brazil’s Bond Yield Drops to Record on Central Bank’s Minutes

2009-06-18 15:08:46.215 GMT

By Fabio Alves

June 18 (Bloomberg) -- Brazil’s benchmark local-currency bond yield fell to the lowest in at least two years after the central bank indicated it will keep cutting interest rates to shore up the economy. The yield, which fell for a sixth day, has declined almost four percentage points since January, as policy makers cut borrowing costs to a record low of 9.25 percent to lift Latin America’s largest economy from its worst contraction in at least a decade.

“The minutes generally read slightly more dovish than we had anticipated, though there is a definite shift closer to a balanced view on rates,” Nick Chamie, head of emerging-market research at RBC Capital Markets in Toronto, wrote in a note to clients. Chamie expects the central bank to lower the benchmark rate a half-percentage point to 8.75 percent at the July meeting. The yield on Brazil’s benchmark zero-coupon bonds due January 2010 fell three basis points, or 0.03 percentage point, to 8.93 percent at 11:02 a.m. New York time. Earlier it touched 8.9 percent, the lowest since the security started trading in October 2007.

The real rose 0.4 percent to 1.9626 per U.S. dollar, from 1.9706 yesterday. The central bank said slowing inflation will give it more room for cuts in the benchmark lending rate, according to the minutes of the June 9-10 meeting published on its Web site today. The bank cut the rate by 1 percentage point on June 10, more than the 0.75-percentage-point reduction forecast in a Bloomberg survey of 48 economists.

Recession

Brazil’s economy slipped into its first recession since 2003 after companies cut back production to adjust for the first global recession since World War II. The economy shrank 0.8 percent in the first quarter from the previous three months, after a 3.7 percent contraction in the last quarter of 2008.

In the overnight interest-rates futures market, the yield on contracts to January 2010, the most-actively traded on the BM&F commodity and futures exchange, dropped three basis points to 8.86 percent.

BNP Paribas strategists expect the central bank will cut interest rates by a half-percentage point to 8.75 percent at its July meeting. They predict no additional cuts in the benchmark rate in 2009 after July.

‘Clear Signals’

“The central bank sent clear signals that the Selic rate is approaching a level requiring a more cautious approach,” BNP Paribas strategists wrote in a note to clients today. “Despite there being a residual margin for an easing process, monetary policy must maintain a cautious stance, with the aim of ensuring inflation converges to target,” the minutes said. “The committee agreed that any additional monetary easing must be implemented in a more parsimonious manner.”

Brazil’s longest-term local bonds fell, pushing the yield higher for the first time in five days, as the market forecasts the central bank will stop cutting rates after its policy meeting in July. Policy makers probably will lower their benchmark rate a quarter-point to 9 percent at the next meeting July 21-22, according to the median forecast of about 100 economists in a central bank survey published June 15. They forecast the benchmark rate will end the year at 9 percent.

The yield on Brazil’s zero-coupon bonds due January 2011 rose four basis points to 10.05 percent.

In the overnight interest-rates futures market, the yield on contracts to January 2011 gained 11 basis points to 10.02 percent.

A pause in interest-rate cuts “cannot be totally ruled out if economic data improves markedly, commodity prices push significantly higher or global risk aversion surges in the interim,” RBC’s Chamie worte.

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