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MARKETS: DI rates close lower as inflation decelerates

Oct 09, 2019 (Grupo CMA via COMTEX) --

São Paulo, 9 - The one-day interbank deposit futures rates (DI rates) in Brazil ended lower as investors reacted to a sharper-than-expected deceleration of the official consumer price inflation index (IPCA) in September. The reading fuels bets that the Selic basic interest rate may drop to a new historical floor before the end of the year. The outlook, however, reduces the momentum of the falling American dollar. Fixed income, derivatives traders say September's IPCA monthly deflation endorses Selic's downward prospects. Renascença Corretora fixed-income trader Luís Felipe Laudísio says that the forward curve currently prices Selic at around 4.70% at the end of this year. "[Pricing] should be closer to 4.50% or 4.75%, corroborating the view of controlled inflation and likely extended maintenance in 2020," he says. Infinity Asset chief economist Jason Vieira estimates that pulling basic interest rates below 5% can be risky. "[Central banks in the world] have been burning ammunition at such a high speed that if there is a problem with the activity, there will be no instruments left to help," he warns. For him, IPCA monthly deflation is largely explained by the weak pace of services, which "indicates weak activity". Meanwhile, the domestic market players also monitor the noises between President Jair Bolsonaro and his PSL right-wing party. For Infinity Asset's Jason Vieira, the possibility of the president leaving the party is "madness" as it has the largest bench in the House of Representatives. The January 2020 DI contract rate ended at 4.954%, from 4.987% in the previous settlement. The January 2021 DI contract rate settled at 4.71%, from 4.82%, while the January 2023 contract was at 5.83%, from 5.97%. The January 2025 contract closed at 6.48%, from 6.61%. Olívia Bulla / Agência CMA Translation by Ricardo Gozzi

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