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MARKETS: DI rates trade 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 trade lower as investors react 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. 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. For him, it is bold to speak of Selic below 4.50%, "but it is likely that [the market players] will force at some point [towards that]." "IPCA monthly deflation in September strengthens Selic's call by 4.5%," says Necton Corretora chief economist André Perfeito. For him, the inflation reading reaffirms the perspective that the Brazilian Central Bank should bring down the basic interest rate to less than 5.00%, as currently expected by "a still minority share" of the financial market players. However, 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". Near the middle of the session, the January 2020 DI contract rate was at 4.953%, from 4.987% in the previous settlement. The January 2021 DI contract rate was at 4.73%, from 4.82%, while the January 2023 contract was at 5.89%, from 5.97%. The January 2025 contract was at 6.54%, from 6.61%. Olívia Bulla / Agência CMA Translation by Ricardo Gozzi

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