Future interest rates jump in Brazil after higher than expected IPCA, as dollar retreats
RIO DE JANEIRO, BRAZIL – The interest rates of the financial market, especially the short-term, shot up on Thursday (9) morning in movements that exceeded 30 basis points (0.3 percentage point), after the National Wide Consumer Price Index (IPCA) of August came above expectations and show a worrying inflationary dynamics in the most inertial prices, revealing more persistent inflation for the year 2022.
Read also: Brazil’s inflation is Latin America’s 3rd highest, behind Argentina and Haiti
At the same time, the commercial dollar retreated, as the market balanced assessments that the Central Bank (BC) will have to raise the tone in the fight against inflation with the scenario of increased institutional and fiscal risk.
Around 10 AM, the interest rate of the Interfinancial Deposit (DI) contract for January 2022 climbed from 6.98% in the previous adjustment to 7.255%, after hitting a high of 7.25%; the DI for January 2023 advanced from 8.79% to 9.13%, after peaking at 9.16%.
In the longer term, the contract rate for January 2025 was up from 10.07% to 10.31%, while the DI for January 2027 was up from 10.54% to 10.75%.
The short-term future rates registered the most significant upward movement at the moment after the August IPCA beat market estimates and reinforced the prospect of persistent inflation ahead.
In the August reading, the indicator advanced 0.87% in the monthly comparison, surpassing the ceiling of the projections captured by Valor Data of 0.85%. The median obtained by the expectations of 35 financial institutions and consultants heard was 0.70%. Gasoline had the greatest impact on price increases, by 0.17 percentage points. In 12 months, inflation jumped to 9.68%.
The negative inflationary dynamic was also underscored by the composition of the indicator. The average of five nuclei (a measure of inflation that does not include more volatile price items, such as food and energy) monitored by the Central Bank accelerated from 0.59% in July to 0.67% in August, according to calculations by MCM Consultores.
In 12 months, the average of these service inflation cores accelerated from 0.49% to 0.64% on the margin, raising the pressure on the BC.
“With possible developments on expectations for 2022, the monetary authority should accelerate the pace of interest rate hikes, raising the Selic by 1.25 percentage points in the next meeting,” says Étore Sanchez, chief economist at Ativa Investimentos, in a report.
According to a fixed income trader of a large bank, the interest market also presents the triggering of “stop-loss” orders (the mechanism that limits losses above a level considered acceptable). “The trigger for this movement was the IPCA, in my view,” says this market professional.
The commercial dollar, in turn, opened the trading session falling. The American currency had retreated by 12 noon to R$ 5.277.
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Brazil — Live Market Board
-0.52%
171,336.99
-0.52%
71,905.78
+0.05%
10,597.06
+0.07%
2,848,945
—
2,528.01
-1.88%
| Instrument | Last | Change | YoY | Prev. | High | Low | Volume |
|---|---|---|---|---|---|---|---|
| IBOV | 171,336.99 | -0.52% | +10.36% | 172,236.05 | — | — | — |
| USD/BRL | 5.58 | -0.05% | +5.49% | 5.58 | 5.59 | 5.58 | — |
| SELIC | 13.75% | — | — | — | — | — | |
| PETR4 | 44.95 | -0.53% | +38.91% | 45.19 | 45.68 | 44.50 | 54,961,500 |
| VALE3 | 64.80 | -1.98% | -0.63% | 66.11 | 66.11 | 64.20 | 22,893,100 |
| ITUB4 | 41.20 | -1.25% | +4.94% | 41.72 | 42.50 | 41.15 | 20,213,600 |
| BBDC4 | 14.54 | -0.95% | -23.79% | 14.68 | 14.84 | 14.30 | 51,531,000 |
| BBAS3 | 17.10 | +0.47% | -24.93% | 17.02 | 17.17 | 16.82 | 27,692,900 |
| B3SA3 | 14.48 | -2.49% | +10.37% | 14.85 | 15.14 | 14.26 | 39,095,500 |
| ABEV3 | 15.79 | +1.15% | +19.80% | 15.61 | 15.79 | 15.55 | 25,853,700 |
| WEGE3 | 50.95 | +0.41% | +12.30% | 50.74 | 51.83 | 50.58 | 12,799,900 |
| PRIO3 | 60.02 | +1.06% | +53.00% | 59.39 | 60.09 | 58.35 | 10,242,700 |
| SUZB3 | 54.46 | +0.48% | +16.62% | 54.20 | 55.50 | 53.86 | 9,241,700 |
| RENT3 | 29.79 | -3.37% | -29.19% | 30.83 | 31.29 | 29.70 | 13,596,000 |
| AZZA3 | 14.73 | -2.58% | -47.69% | 15.12 | 15.55 | 14.52 | 2,463,700 |
| CSNA3 | 4.38 | -2.45% | -47.17% | 4.49 | 4.57 | 4.36 | 18,925,300 |
| GGBR4 | 25.83 | +3.65% | +35.24% | 24.92 | 25.93 | 25.14 | 9,678,500 |
| ENEV3 | 27.05 | -1.28% | +39.79% | 27.40 | 27.74 | 26.75 | 8,263,300 |
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