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Tuesday, April 15, 2008

Brazil Retail Sales February 2008

Brazil's retail sales in February rose at the fastest pace since June 2004, raising expectations that the central bank will raise interest rates tomorrow. Retail, supermarket and grocery store sales, as measured by the volume index, jumped 12.2 percent in February from February 2007, the national statistic agency said this morning. The pace of economic expansion does seem to be slowing, however, since seasonally adjusted sales fell 1.5 percent on a month by month basis in February from January. Sales in the quarter which ended in February were up 0.3 percent compared with a 1.4 percent jump in the previous quarter.

Policy makers, led by central bank President Henrique Meirelles, are now widely expected to increase the benchmark interest rate tomorrow for the first time in three years. The consensus seems to be an expectation for the bank to increase the rate to 11.50 percent from the current record low 11.25 percent.

Brazil's annual inflation has steadily accelerated since November. Consumer prices in the 12 months through March rose 4.73 percent, the highest since March 2006, and greater than the central bank's target of 4.5 percent, plus or minus 2 percentage points.

What is Latin America's biggest economy grew 6.2 percent in the last quarter of 2007, more than twice the pace of the last decade. Commodity exports and bank lending, which has almost doubled in the past three years and is fueling purchases of cars and other big-ticket items, is powering economic growth.

Yields on interest-rate futures rose after the report was released. The yield on the overnight contract for May delivery increased 2 basis points, or 0.02 percentage point, to 11.43 percent.

The yield on Brazil's zero-coupon bonds due in January 2010 rose 4 basis points to 13.37 percent, according to Banco Bradesco SA.

Brazil's real gained on the news and was up 0.2 percent to 1.6832 per dollar at 4:48 p.m. New York time, from 1.687 yesterday. It had risen by as much as 0.6 percent earlier in the day. Brazil's currency has appreciated by 20.2 percent over the past 12 months, the second-best performance (after the Swiss franc) among the 16 most traded currencies.

Brazil's Bovespa index also rose for the first time in three days, gaining 464.94, or 0.8 percent, to 62,618.39. 37 stocks rose and 26 fell.

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