Brazil Inflation Expectations Are In Line With Target, Meirelles Says

Brazil’s central bank President Henrique Meirelles said inflation expectation are in line with the country’s target, reinforcing bets policy makers will keep rates unchanged next month. Interest rate futures plunged.

“What does Brazil need to do to reduce interest rates?” Meirelles said today in an event in Belo Horizonte. “It is enough to keep a responsible policy.”

Yields on the interest rate futures contract due in January 2012 plunged as much 0.15 percentage point, the biggest intraday decline since October 2009, after Meirelles’ comments. The contract, the most traded today in Sao Paulo, was down 16 basis points to 11.31 percent at 2:17 p.m. New York time.

“Meirelles said inflation expectations are anchored, which is something he hasn’t talked about before,” said Zeina Latif, senior economist at RBS Securities Inc. in Sao Paulo. “It shows a central bank that’s comfortable with the inflation outlook.”

Central bank policy makers on July 21 raised the benchmark lending rate, known as the Selic, by a half-point to 10.75 percent, surprising 48 of 51 analysts surveyed by Bloomberg who expected a third straight 0.75-point increase. The central bank said it reduced the pace of interest rate increases because of lower inflationary risks.

Meirelles, in his speech to business leaders today, said Brazil was in a “virtuous cycle” of lower inflationary risk, falling net debt levels and rising foreign currency reserves that is contributing to a “consistent” decline in interest rates.