Yields on interest rate futures had fallen since last Friday, after data showed the country's economy grew at only half the pace expected by economists in the third quarter. But interest-rate contracts jolted higher on Friday after Brazil's statistics bureau said November inflation accelerated to 0.6 percent, above economists' expectations for a 0.5 percent reading.
Interest-rate contracts maturing in January 2014, one of the most traded, jumped 13 basis points to 7.0 percent. That contract traded above 7.3 percent last week, before the disappointing GDP figure, and slid to 6.87 percent on Thursday. "What's boosting those contracts is mostly the higher-than-expected IPCA, which poured cold water on those who expected interest rates to fall," said Decio Pereira Filho, a trader with Socopa brokerage in Sao Paulo.
"The latest comments by Tombini also reinforced the view that the Selic will remain stable," he added. Brazil's central bank president Alexandre Tombini repeated late on Thursday that the Selic rate should remain at an all-time low of 7.25 percent for a "prolonged" period.
His comments echoed the content of minutes of the bank's latest monetary policy meeting, released earlier on Thursday, but the mere repetition of the "prolonged period" expression led some traders to interpret that bets on additional rate cuts were premature. Meanwhile, the Brazilian real shed 0.6 percent to bid at 2.0904 per dollar, weakening after intervention by the central bank spurred four sessions of gains.
Brazil's central bank said on Friday it was conducting a survey to gauge demand for dollars in the foreign exchange market, suggesting that policymakers could intervene again early next week to support the currency and setting the real up to strengthen next week. A series of measures by the government helped the real rally nearly 2 percent this week back from its weakest in 3-1/2 years.
The measures, which included strong central bank intervention and tax changes to facilitate dollar inflows, signalled an apparent reversal in a recent government strategy that favoured a weaker currency to boost exports. "The weekend is upon us so folks get more cautious. Investors' trust is shaken, they're asking themselves, 'what are the government's intentions?'," said Jaime Ferreira, a manager at the currency desk at Intercam brokerage in Sao Paulo.
Other Latin American currencies posted gains after data showed the US economy created 146,000 new jobs in November, more than the 93,000 positions expected by economists. The data supported appetite for risk globally, although the outlook for the US labour market still seemed tepid as the country's jobless rate fell because people gave up searching for work.
The Mexican peso gained 0.12 percent, ending the week with an advance of 0.64 percent during the week. Data showed speculators raised their bets in favour of the peso for the second straight week indicating increasing confidence in a rebound after a recent slump.