BRAZIL: DI Rates Open Lower After Central Bank Minutes Point To Stable Selic

(RTTNews) - The one-day interbank deposit futures rates (DI rates) in Brazil started Tuesday lower, tracking the decline in the U.S. dollar in local markets and reacting to the minutes of the most recent meeting from the central bank's monetary policy committee.

The document showed that the benchmark interest rate in Brazil (Selic) should remain unchanged for some time, removing a key support to mid and long-term rates.

The January 2019 DI contract rate fell to 6.590% early in the session, from 6.635% Monday, while the January 2020 DI rate decreased to 7.58%, from 7.66%. The January 2021 DI contract rate was at 8.67%, from 8.79%. The locally traded U.S. dollar declined more than 1%, to R$ 3.65.

CM Capital Markets economist Camila Abdelmalack said that the central bank minutes clarify that Selic will remain at 6.5%, while markets were expecting an additional 25 basis-point cut this year.

"It is clear that the Selic will stay on the current level in the short and medium term, contingent on the external scenario evolution," she said.

Renascenia Corretora also said in a report that the monetary policy committee tried to push away "the pessimist readings that the central bank could raise the Selic in the next few months."

According to fixed-income trader Luis Felipe Laudisio, from Renascenia, the minutes made it clear that changes to the external scenario were decisive for the central bank to keep the Selic unchanged. At the same time, however, the document also shows that the central bank won't react automatically to external shocks. That should keep investors from pricing a rate hike.