September 21, 2017 / 5:14 PM / a year ago

EMERGING MARKETS-Brazil rate future yields fall on rate-cutting bets

    By Bruno Federowski
    SAO PAULO, Sept 21 (Reuters) - Yields paid on Brazilian
interest-rate futures fell on Thursday as traders bet the
central bank could cut rates below 7 percent after it reduced
inflation forecasts for this year and the next.
    In its quarterly inflation report, the central bank forecast
inflation at 3.2 percent in 2017 and 4.3 percent in 2018, down
from 3.3 percent and 4.4 percent, respectively, even as it
revised upward its estimate for economic growth this year.

    Soon afterward, a report showed inflation undershot
analysts' expectations in mid-September and held near an 18-year
low, suggesting the central bank will take its time to halt rate
    Yields paid on interest-rate future contracts indicated
growing bets that the central bank will cut the benchmark Selic
rate by 75 basis points next month to 7.50 percent, with bets on
a smaller 50 basis-point reduction nearly fading away.

    Rate futures indicated the Selic would likely fall as low as
7 percent, an all-time low, but bets that it could drop even
lower began to stir.
    Economists at BofA-ML cut their forecasts for the Selic at
the end of the rate-cutting cycle to 6.5 percent from 7 percent,
adding that they could remain low for longer.
    Currencies in the region mostly weakened, extending the
previous day's losses following the Federal Reserve policy
    The Fed on Wednesday signaled it still expects to raise
interest rates by the end of the year despite a recent bout of
low inflation, which could potentially drain funds away from
high-yielding emerging markets.
    Currencies of Chile, Mexico, Brazil
and Colombia slipped between 0.2 percent and 0.8 percent.
    Still, strategists at BNP Paribas recommended clients use
the opportunity to purchase the Brazilian real, saying U.S.
rates are likely to remain low in the long term.
    Key Latin American stock indexes and currencies at 1720 GMT:
 Stock indexes                     Latest     Daily   YTD pct
                                               pct    change
 MSCI Emerging Markets             1,108.80    -0.29    28.97
 MSCI LatAm                        2,983.92    -0.55    28.19
 Brazil Bovespa                   75,659.73    -0.45    25.62
 Mexico S&P/BVM IPC               50,478.11     0.23    10.59
 Chile IPSA                        5,261.90     0.39    26.75
 Chile IGPA                       26,265.83     0.45    26.68
 Argentina MerVal                 24,496.87     0.67    44.80
 Colombia IGBC                    11,090.10      0.1     9.50
 Venezuela IBC                   424,399.34    -0.32  1238.58
 Currencies                        Latest     Daily   YTD pct
                                               pct    change
 Brazil real                         3.1342    -0.17     3.67
 Mexico peso                        17.8395    -0.39    16.28
 Chile peso                          624.32    -0.44     7.43
 Colombia peso                     2,913.26    -0.79     3.03
 Peru sol                             3.247     0.03     5.14
 Argentina peso (interbank)         17.2700    -0.43    -8.08
 Argentina peso (parallel)            17.93     0.22    -6.19

 (Reporting by Bruno Federowski; Editing by Dan Grebler)
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