By Matthew Bristow and Raymond Colitt – Jan 26, 2012 8:18 AM ET
Brazil’s central bank said there is a “high” chance its benchmark rate will drop below 10 percent, signaling it remains focused on spurring economic growth even as record-low unemployment pressures consumer prices. Yields on interest rate futures plunged.
The bank’s board, led by President Alexandre Tombini, said it sees significant structural changes in Brazil’s economy that will allow it to continue lowering borrowing costs, according to the minutes from its Jan. 17-18 meeting published today.
After growth in the world’s second-biggest emerging market slowed in the second half of last year more than expected, and in the absence of a solution to Europe’s debt crisis, the bank said it sees “a high probability for the realization of an outlook in which the Selic rate moves toward a single digit.” The board voted unanimously last week to reduce the rate to 10.5 percent, as forecast by all 67 analysts surveyed by Bloomberg.
After today’s minutes were released traders scrapped bets that signs of faster growth, quickening inflation and an improved outlook in global markets would lead policy makers to end their easing cycle soon. The yield on interest rate futures maturing in Jan. 2013 fell 18 basis points to 9.66 percent at 9:34 a.m. local time. It was the biggest drop since October.
“After the recent developments domestically and internationally, the market was expecting the Selic at 10 percent,” said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo. “We will revise our forecast downwards for sure.”
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