Brazil Rate Futures Fall as Central Bank Raises Selic Less Than Forecast

Yields on short-term Brazilian interest-rate futures contracts fell, while those maturing in 2012 and beyond rose after the central bank increased borrowing costs last week less than economists expected.

Yields on the futures contract due in May fell two basis points, or 0.02 percentage point, to 11.90 percent at 10:35 a.m. in New York. The yield on the contract due in June fell 6 basis points to 11.90 percent. Yields on the contract due in January rose 3 basis points to 12.26 percent.

Policy makers raised the benchmark Selic rate on April 20 by 25 basis points to 12 percent, less than the 50 basis point median estimate of 58 analysts surveyed by Bloomberg. Yields on longer-term contracts are rising on speculation that the central bank may need to step up rate increases in the future, said Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo.

“The market is going to remain in a serious discussion over whether there will be more tightening or not,” Perfeito said in a telephone interview. “The market is saying, ‘OK, you can raise rates less now, but you’re going to have to do more in the future.’”

Policy makers said in a statement that an adjustment of monetary conditions for a “sufficiently long period” is the “most adequate” strategy to guarantee inflation returns to its 4.5 percent target in 2012. Inflation may exceed the 6.5 percent upper limit of the target between July and August, the central bank’s economic policy director Carlos Hamilton said March 30.

Markets in Brazil were closed on April 21 and April 22 for a national holiday.

Consumer prices will rise 6.34 percent in 2011, up from a week-earlier forecast of 6.29 percent, according to an April 20 survey of about 100 economists published today. Economists left unchanged their forecast for inflation next year at 5 percent, the survey showed. President Dilma Rousseff said today she’s “immensely worried” about accelerating prices.

The real fell 0.3 percent to 1.5705 per dollar, from 1.5663 on April 20.