Reuters: US Dollar Report: EMERGING MARKETS-Brazil rate futures fall on cenbank minutes

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EMERGING MARKETS-Brazil rate futures fall on cenbank minutes Jul 19th 2012, 15:45 By Walter Brandimarte and Danielle Fonseca RIO DE JANEIRO, July 19 | Thu Jul 19, 2012 11:45am EDT RIO DE JANEIRO, July 19 (Reuters) - Brazilian interest rate futures declined on Thursday after minutes of the central bank's latest monetary policy meeting left the door open to further cuts in Brazil's base interest rate, the Selic. Brazil's domestic yield curve shows investors have largely priced in at least one more 50-basis-points cut in August in the Selic, which currently stands at an all-time low of 8 percent. But markets remain split about the possibility of another small cut in October. In its minutes, the central bank repeated that lower-than-expected global economic growth will continue to have a disinflationary impact on Brazil, leading analysts to conclude that policymakers will seize the opportunity to further reduce the country's historically high interest rates. "The external scenario still brings a lot of uncertainty and the central bank can't miss this opportunity to cut the Selic," said Paulo Nepomuceno, a fixed-income strategist at Coinvalores brokerage in Sao Paulo. But the minutes also brought some hawkish twists. The central bank anticipated domestic economic activity will gather speed in the second half of the year and saw a lower probability of "extreme events" in international financial markets. "I believe the central bank is closer to stopping cutting rates than it was before," said Luiz Otavio de Souza Leal, chief economist at Banco ABC Brasil. "What's noteworthy is that the central bank expects a more robust recovery in the second half of the year." Interest rate contracts maturing in January 2013 declined 6 basis points to 7.39 percent while contracts due January 2014 fell 6 basis points to 7.70 percent. Rates had risen this week on expectations the central bank would add some hawkish remarks to the minutes and on recent price indexes that showed inflation starting to accelerate. Link this Share this Digg this Email Reprints

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