Reuters: US Dollar Report: UPDATE 1-Brazil currency, rate futures fall on central bank decision

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UPDATE 1-Brazil currency, rate futures fall on central bank decision Apr 18th 2013, 14:05 Thu Apr 18, 2013 10:05am EDT * Brazil ups Selic rate by 25 bps; investors priced in 50 bps hike * Shorter-dated interest rate futures plunge, curve steepens * Real weakens 0.8 pct to 2.01 per dollar By Walter Brandimarte RIO DE JANEIRO, April 18 (Reuters) - Brazil's currency and interest-rate futures fell on Thursday after the central bank tightened its monetary policy less aggressively than investors had priced in. Policymakers late on Wednesday raised the benchmark Selic rate by 25 basis points to 7.5 percent. While most economists expected such a move, investors in the interest-rate futures market had priced in a 50 basis point hike. The real slid 0.8 percent to 2.0143 per dollar, moving in the opposite direction of several other Latin American currencies, as investors adjusted their expectations for a monetary tightening cycle that will likely be shorter and less aggressive than they had initially expected. More modest increases in the benchmark Selic rate, which stood at an all-time low of 7.25 percent since October, mean the allure of real-denominated assets will not be as great as investors imagined. Interest-rate futures dropped across the board but shorter-dated contracts fell more sharply, causing the yield curve to steepen. Investors feared the central bank move may not be enough to put a lid on inflation, demanding higher rates in the future. "Outside the actual realization of some of these feared external tail risks, such a small tightening cycle would do very little to prevent the deterioration of inflation," Tony Volpon, Nomura Securities' head of emerging markets research in the Americas, wrote in a research note. Link this Share this Digg this Email Reprints

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