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Brazil - Bump Every Month 11% Base Rate Thread

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Brazil’s central bank signaled borrowing costs will remain unchanged until at least the end of the current administration in December as policy makers are trapped between a recession and above-target inflation.

The bank’s board, led by President Alexandre Tombini, yesterday held the benchmark rate at 11 percent for the third straight meeting, removing the phrase “at this moment” from the communique in an indication the key rate will remain on hold, Andre Perfeito, chief economist at Gradual Investimentos, said. All except one of the 54 analysts surveyed by Bloomberg correctly forecast the decision.

President Dilma Rousseff is trailing in polls as inflation near the ceiling of the target range has helped to erode consumer and business confidence. Yesterday’s monetary policy decision was the last before Brazilians select their leader in October. Marina Silva, who pledges to give the central bank president autonomy to bring inflation to the 4.5 percent target, would beat the incumbent in a runoff, polls show.

“They’re leaving this problem to the next board of the central bank and also the next president of Brazil,” Perfeito said by telephone from Sao Paulo. “Until the end of this administration it will be 11 percent. They won’t change that.”

11% returns they must be sucking in lots of hot investment looking for a return when the BoE/Fed/ECB/BoJ are all running near 0% base rates.

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Real interest rates (inflation linked bond break evens) are 5.5% in Brazil for 5 or 10 year debt. The bonds are extremely attractive, also banking reforms from a new administration are likely to be supportive of the bond market. The problem is the only way to access them for folks like us is through EM debt funds but then you are also buying a load of so-so paper you don't necessarily want.

If anyone has a work-around then please let me know!

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