The exceptional surge in Brazilian interest rate futures trading this week has been caused by uncertainty over the future of the Brazilian central bank’s rate setting team, a source has told FOW.

Derivatives trading at BM&F Bovespa broke daily volume records on both Wednesday and Thursday, because of swollen volumes of One Day Interbank Deposit Futures.

More than 6m of the interest rate contracts changed hands on Thursday April 18. The volume of that one contract would on its own have been a daily record for the whole exchange.

On Wednesday 4.54m of the contracts were traded. Average daily volume for this future in January was 342,000. In February, 14.9m interest rate contracts were traded for the month as a whole.

Speculation has been growing in Brazil that the president of the central bank, Henrique Meirelles, is considering leaving his post and running for public office.

Asked whether questions over the move were the biggest factor behind record trading, one Brazilian broker said: “Probably. If he does, he will leave his position at the end of the month… This was most likely his last meeting.”

The source added: “We expect [rates] to rise to maybe 11.25% by the end of the year… [but] most of the analysts are saying they expect a half point rise at the next meeting.”

Wednesday’s record day of trading has been attributed to investors guessing – correctly – that the central bank would keep its Selic base rate on hold. The rate setting committee voted 5-3 to keep rates on hold for a fifth straight month.

Asked what sort of president Meirelles had been, the source said: “I think he’s sensitive… he rolls with the reality. We didn’t have any surprises from him.”

Concern is growing in the Brazilian markets that the central bank will seek to raise rates significantly in coming months from their present historic low of 8.75%. Marcelo Lara, of Santander’s interest rate derivatives team in Brazil, told FOW recently that the bank expects rates to rise to 12% by the end of the year.

A spokesman for Banco Central do Brasil said in a statement: "The governor will decide [at] the end of the month if he will step out of office to run in [the] next elections, or if he will stay as the governor of [the] Central Bank until the end of the year."

Tom Osborn +44 207 779 8361 tosborn@fow.com