MARKETS: DI rates close lower on weak economic activity

São Paulo, 14 - The one-day interbank deposit futures rates (DI rates) in Brazil ended lower as investors reacted to further indication of weak economic activity in the final stretch of 2019....

São Paulo, 14 - The one-day interbank deposit futures rates (DI rates) in Brazil ended lower as investors reacted to further indication of weak economic activity in the final stretch of 2019. Market players also monitored the falling locally traded U.S. dollar after further intervention by the Brazilian Central Bank (BCB) and the coronavirus outbreak newsflow. Traders notice that the Central Bank's performance in the FX market has calmed down the locally traded U.S. dollar, making room for a yields' withdrawal on the forward curve. At the same time, there is a growing expectation that investors will soon also test the BCB's strategy. "The BCB should promote an additional cut in the basic interest rate until the middle of this year, dropping it to 4% per year", say UBS economists Fabio Ramos and Tony Volpon. For them, that perspective is supported by the benign scenario of inflation and the underperforming performance of the industry, retail, and the service sector. "Economic growth remains subdued, so it's likely to expect a curve down again," notices a foreign bank's treasury director, referring to the weak figures of the Central Bank's economic activity index (IBC-Br) released in the morning. However, he ponders that low growth combined with a weak local currency is "definitely bad". "The BCB did very well, though late," he notes. For him, it should not be long before investors also begin to test the Central Bank stance. "The market will probably test the BCB's strategy in the second half", he warns. For Bradesco's economic team, the latest 2019 indicators showed underperforming performance, suggesting an increase of 0.5% in the fourth quarter. However, the bank estimates that the maintenance of the Selic at a low level through 2020, stimulating credit, and the resumption of the labor market should be vectors of acceleration of economic activity. The January 2021 DI contract rate settled at 4.230%, from 4.260% in the previous settlement. The January 2022 contract was at 4.73%, from 4.83%. The January 2023 contract ended at 5.27%, from 5.41%, while the January 2025 contract closed at 5.96%, from 6.08%. Olívia Bulla / Agência CMA Translation by Ricardo Gozzi http://www.agenciacma.com.br/esp/



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MARKETS: DI rates close lower on weak economic activity

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