By Adriana Brasileiro
Dec. 4 (Bloomberg) -- Brazil’s real rose for the first time this week on speculation global central banks will reduce interest rates further to revive economic growth, sustaining demand for local exports.
The yield advantage of domestic bonds widened as the European Central Bank and the Bank of England cut borrowing costs today. Brazil’s inflation-adjusted interest rate is 7.34 percent, the highest in the world. The local target lending rate, known as the Selic, is 13.75 percent.
“The rate cuts abroad are positive and have a calming effect on local markets,” said Alexandre de Azara, chief economist at BRZ Investimentos SA in Sao Paulo. “In Brazil, the central bank will probably maintain rates for a while and maybe even increase the Selic if the impact of the currency depreciation on inflation becomes more severe.”
The real increased 1.2 percent to 2.4671 per dollar at 8:45 a.m. New York time, from 2.4975 yesterday. It tumbled 6.5 percent against the dollar this week and is the biggest decliner among major currencies over the past three months, having lost 30 percent.
The European Central Bank delivered the biggest interest- rate cut in its 10-year history to prevent an economic slump from deepening. The ECB lowered the main refinancing rate by 0.75 percentage point to 2.5 percent.
The Bank of England cut its benchmark interest rate from 3 percent to 2 percent, the lowest level since 1951, to try to push lenders to liberate credit.
The yield on the zero-coupon note due in January 2010 increased 3 basis points, or 0.03 percentage point, to 13.87 percent, according to Banco Votorantim.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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