BRAZIL: DI Rates Open Lower, Tracking USD

(RTTNews) - The one-day interbank deposit futures rates (DI rates) in Brazil opened lower in the forward curve, tracking the sharp fall of the locally traded U.S. dollar.

Investors are reacting to statements by Brazil's Central Bank governor Ilan Goldfajn last night. He said he was willing to use instruments to stem the greenback's hike but not an increase in the Selic rate. In the foreign exchange market, the locally traded U.S. dollar was falling 3.05%, to R$ 3.8050.

For a director of derivatives desk, the press conference convened last night by the central bank governor served to "calm the mood" after the "rush" in business with the dollar and future interest over Thursday.

"He boasted the US$ 380 billion ammunition box in reserves to withstand the external shock and signaled that the sale of foreign exchange swaps could exceed US$ 100 billion more than the Tombini era, if necessary," he said.

But he noted that although the monetary authority has suggested that it will not raise the basic interest rate in the short term to contain the dollar, Goldfajn "did not close the door (for that possibility) depending on the impact on inflation."

In the same tone, a director of a foreign bank's treasury assesses that Goldfajn's speech shows that "the door is open" for a change in monetary policy.

"They are still not panicking, which has reduced the chance of an emergency meeting (to raise the Selic) to zero, but the increase in exchange intervention without higher interest compensation should not work," he said.

Calculations from Asset Quantities show that the forward curve closed Thursday's trading session, pricing virtually a 100% odd of a 0.50 percentage point increase in the Selic this month.

Near the middle of the session, the January 2019 DI contract rate was at 7.340%, from 7.585% in the previous session, while the January 2020 DI rate rose to 8.65%, from 8.84%. The January 2021 DI contract rate was at 9.62%, from 9.79%.