Reuters: Regulatory News: Brazil futures yields fall on savings rule revamp

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Brazil futures yields fall on savings rule revamp May 2nd 2012, 15:27 Wed May 2, 2012 11:27am EDT * Yields on rate futures drop as saving rule change looms * Weak data in the United States reinforces yields trend * Brazil's Rousseff seen discussing rule changes this week By Alonso Soto and Guillermo Parra-Bernal BRASILIA/SAO PAULO, May 2 (Reuters) - Yields on Brazilian interest rate futures contracts dropped on Wednesday on speculation that President Dilma Rousseff will this week discuss changes to rules on savings accounts, paving the way for lower borrowing costs in Latin America's largest economy. Local media reported that Rousseff may present a proposal to lawmakers to bring down century-old rules on how savings accounts are remunerated. The move is key to give central bank policymakers additional leeway to slash the overnight lending Selic rate below a record low of 8.75 percent. Changes to such rules might have longstanding consequences on Brazil's bond markets, traders said, because the outlook for lower rates could encourage individuals to exit fixed-income investments and move into savings accounts known as "poupanca." "Markets are feeling the imminence of this very important structural change that should pave the way for a further, steeper decline in the Selic rate," said Luciano Rostagno, chief economist at São Paulo-based WestLB. "Interest rate futures markets are responding to such imminence with yield declines." The yield on the contract due in January 2014, the most traded early on Wednesday, fell to 8.62 percent from 8.73 percent at the opening. Rate futures contracts are used by investors to bet on the level of the benchmark Selic rate at a certain period. Reducing the cost of credit in Brazil, where banks charge some of the world's highest borrowing costs, has become the main goal of Rousseff's economic policy. This week, she urged banks to bring down the cost of borrowing to foster the nation's development and help stoke an economic recovery. In a televised address on Monday Rousseff warned banks her government would be "firm" in demanding they cut lending rates in tandem with the central bank's falling benchmark rate. Savings in Brazil are tax free and pay out a fixed interest of 0.5 percent per month plus a variable rate, which bring the total return to about 6 percent per year. Inflation for the past 12 months ended in March was 5.2 percent. The central bank has slashed 350 basis points off the Selic since August, to 9 percent, in an aggressive push to shore up the economy, which almost slid into recession late last year. Yields also fell after data showed U.S. private employers added far fewer jobs than expected in April, adding to investor concern over the pace of recovery in the world's largest economy. Link this Share this Digg this Email Reprints

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