Brazil Swap Rates Fall on Global Growth Concern; Real Weakens

Brazilian swap rates dropped for a third day as global growth concern overshadowed a central bank survey showing economists raised their end-of-year interest-rate forecast for the first time in 2012.

Yields on most contracts fell even as the median estimate in a central bank survey of about 100 economists published today indicated the Selic rate will remain at its current 7.5 percent for the rest of the year, compared with a projection of 7.25 percent in the prior week. German business confidence unexpectedly fell, and China’s manufacturers and retailers are less optimistic about sales, reports showed today.

“Markets have negative views principally in respect to China and Europe,” Ures Folchini, the head of fixed income at Banco West LB do Brasil SA, said by phone from Sao Paulo. “Longer-term contracts tend to fall” when global economic news is negative, he said.

Swap rates on the contract due in January 2014 fell two basis points, or 0.02 percentage point, to 7.76 percent at 6 p.m. in Sao Paulo. The real slid along with most of the 16 most- traded currencies tracked by Bloomberg, dropping 0.1 percent to 2.0256 per dollar.

Since August 2011, policy makers led by central bank President Alexandre Tombini have cut the target lending rate by 500 basis points to a record low 7.5 percent to spur Brazil’s economic growth, which trailed that of Japan and the U.S. in the second quarter.

Inflation View

Economists in the central bank survey also raised their forecast for 2012 inflation to 5.35 percent from 5.26 percent in the previous week.

Earlier this month, Tombini told a Senate hearing that annual inflation will slow to the central bank’s 4.5 percent target in a “non-linear” way by year-end.

“Faster-than forecast inflation and stronger activity -- all this signals that maybe another cut isn’t necessary,” Marco Antonio Caruso, an economist at Banco Pine SA, said by phone from Sao Paulo. “The most recent comments by the government are more about the need to not raise rates next year, rather than lower rates.”

Finance Minister Guido Mantega told reporters in Paris last week that “the policy of low interest rates will continue.”

The real weakened for a second day as stocks and commodities fell after European leaders clashed on ways to stem the debt crisis. Manufacturers and retailers in China, Brazil’s biggest trading partner, are less optimistic about sales than they were three months ago and more companies are cutting jobs, according to a survey modeled on the Federal Reserve’s Beige Book.

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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