Yields on Brazilian interest rate futures contracts fell on Thursday as investors saw the central bank signaling a pause in raising rates, though analysts were cautious about reading too deeply into its guidance.
Brazil's central bank raised its benchmark Selic interest rate BRCBMP=ECI to 12.5 percent from 12.25 percent late on Wednesday. For more see [ID:nN1E76I0KN].
The rate hike was expected but the statement accompanying the decision removed language about a "prolonged" tightening cycle, which some analysts read as a hint the bank could stop tightening rates as soon as their next meeting at the end of August.
"The statement from the central bank was a bit more dovish than expected," said Luiz Nunes, director of Claritas Wealth Management in Sao Paulo.
Investors, who had been largely divided on the possibility of further rate rises before the Wednesday meeting, pushed yields on rate futures down in Sao Paulo. The yield on the contract due January 2012 DIJF2 dipped as low as 12.46 percent from 12.49 percent.
Yields on longer-dated contracts, however, edged up, with the January 2014 DIJF4 contract at 12.72 percent from 12.69 percent, a sign investors saw the bank returning to tighter interest rates in coming years.
The central bank's statement on Wednesday read, in its entirety: "After evaluating the outlook and the balance of risks for inflation, the Copom unanimously decided, at this moment, to raise the Selic rate to 12.50 percent per annum, without bias."
Statements in June and April had both mentioned a "prolonged" tightening cycle, and the bank raised rates by 25 basis points at each of those meetings.
"What the exclusion of 'sufficiently long period' means is open to debate," wrote Denis Blum, senior economist with Bradesco Corretora in a note to clients. "For us, it just signals that the monetary adjustment is close to its end, but not necessarily at the end."
Of nine economists consulted by Reuters, only one, Austin Ratings, changed their forecast for the year-end rate. Austin now sees a year-end Selic of 12.50 percent, down from a previous call of 12.75 percent.
More revealing, analysts said, would be the minutes from the meeting, due for release on July 28.
The document "should bring more information about the next steps in monetary policy," wrote Ilan Goldfajn, chief economist of Itau Unibanco. Goldfajn is a former central bank director.