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Brazil currency falls, yields on interest rate drops

Market bets were split about even between a 25-basis-point cut in October and rates being held.

Brazil, Brazil economy, Brazil inflation, Brazil central bank, Brazil economic condition, latest news, business new Central bank laid out a blueprint to lower rates, highlighting a reduction in uncertainty over the approval of austerity measures and easing food inflation. (File)

Brazil’s currency weakened and yields paid on interest rate future contracts fell on Thursday as traders increased bets on an October rate cut after the central bank dropped a mention to a lack of space for lower borrowing costs from its policy statement.

In an unanimous vote, the bank on Wednesday held its benchmark Selic rate steady at 14.25 percent as expected.

But the central bank also laid out a blueprint to lower rates, highlighting a reduction in uncertainty over the approval of austerity measures and easing food inflation. “All in all, while reckoning that it still continues to be a bold call, we think there is a possibility for a monetary easing cycle to start at the next Copom meeting,” economists with Haitong investment bank wrote in a client note, referring to the bank’s monetary policy committee.

Market bets were split about even between a 25-basis-point cut in October and rates being held, according to Reuters calculations.

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The move also reflected lower demand for high-yielding currencies in general as traders increased bets on an imminent US rate hike ahead of the widely followed nonfarm payrolls report on Friday.

Brazilian shares seesawed and its currency fell on Thursday, as investors tried to discern when US interest rates would rise and whether the government would make fiscal adjustments after the country’s Senate voted to oust former President Dilma Rousseff a day prior.

The real closed at 3.2495 per dollar, down 0.63 percent from Wednesday. In Mexico, the peso weakened 0.18 percent to close at 18.7475 per dollar.

First published on: 02-09-2016 at 04:57:28 am
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