Brazilian Interest-Rate Futures Yields Drop as Job Creation Lags Forecasts

Yields on most Brazilian interest- rate futures contracts fell and the real declined as slower job growth cements the view that the central bank will keep lowering borrowing costs.

Yields on futures contracts due in January 2015 fell four basis points, or 0.04 percentage point, to 10.46 percent. The yields have dropped 10 basis points this week, following a fall of 21 basis points in the previous five-day period. Yields on contracts due in 2013 held at a four-year low of 9.93 percent.

Latin America’s largest economy created 126,143 government- registered jobs in October, compared with 209,078 the previous month, the Labor Ministry said today in Brasilia. The median forecast of 12 economists surveyed by Bloomberg was for 167,178 jobs. Brazil’s central bank may reduce reserve requirements to give liquidity to mid-sized banks, helping the economy weather the European debt crisis, O Estado de S. Paulo reported, without saying where it obtained the information.

“The labor data show that the world crisis is affecting Brazil’s economy,” said Ures Folchini, head of fixed income at Banco WestLB do Brasil. “That means the central bank will take all measures available, including interest-rate cuts and removing macro prudential measures. The central bank will do more interest rate cuts.”

The real fell 0.4 percent to 1.7865 per dollar, from 1.7795 yesterday. The currency declined 2.4 percent this week on concern the deepening European crisis will choke off credit, undermine investment and crimp exports in developing countries.

Considering Tax Cuts

O Estado de S. Paulo reported that the Finance Ministry is also considering cutting the so-called IOF tax on bank loans as part of the government’s tools used to stimulate economic growth in 2012. The priority is still to open room for the central bank to keep cutting interest rates at a moderate pace, the newspaper reported.

The central bank doesn’t comment on off-the-record stories, bank spokesman Gustavo Freire said in a telephone interview.

Standard & Poor’s yesterday raised Brazil’s foreign- currency rating to BBB, the second-lowest investment grade, from BBB-, citing the country’s fiscal and monetary policies that boost its ability to sustain growth.

Brazil’s policy makers cut the benchmark Selic rate twice since August, lowering it 1 percentage point to 11.5 percent, to shore up the economy. Central bank President Alexandre Tombini said on Nov. 16 that policy makers are contemplating further “moderate adjustments” to the rate to offset a slowdown in global growth.

Traders are wagering that the central bank will cut rates by at least 50 basis points at each of its next three policy meetings, according to Bloomberg estimates based on interest- rate futures contracts.

The pace of consumer price increases as measured by the IGP-10 inflation index slowed to 0.44 percent in November, from 0.64 percent the previous month, the Rio de Janeiro-based Getulio Vargas foundation said today. The figure was in line with the 0.43 percent forecast of 28 economists surveyed by Bloomberg.