Brazil Swap Rates Fall to Record on Output; Real Little Changed

Brazilian swap rates dropped to a record after industrial output grew less than economists forecast in August, spurring bets lackluster growth will prompt policy makers to keep borrowing costs low.

Swap rates on the contract due in January 2014 fell five basis points, or 0.05 percentage point, to 7.62 percent at 6 p.m. in Sao Paulo, a record low on a closing basis. The real closed little changed at 2.0259 per dollar.

“The industrial output result was disappointing,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA in Sao Paulo, said by phone. “This feeds bets that rates will remain low for longer and on the margin supports another cut.”

Industrial output rose 1.5 percent in August from the previous month, the national statistics agency said today in Rio de Janeiro. While the increase was the largest in 15 months, it was smaller than all except one estimate from 39 economists surveyed by Bloomberg, whose median forecast was for a 2 percent gain. Production fell 2 percent from a year earlier, steeper than the median estimate, which called for a 1.6 percent decline.

“The important industrial production expansion recorded in August should not be seen as the beginning of a new, bright era for the manufacturing sector as a series of competitiveness problems remain in place challenging both producers and the government,” Enestor Dos Santos, a Brazil economist at Banco Bilbao Vizcaya Argentaria SA in Madrid, wrote in an e-mailed report.

Automobile Output

Manufacturing growth in August was led by vehicle production, which expanded 3.3 percent from a month earlier. Vehicles sales rose 28 percent in August to a record 420,000 units, supported by tax cuts and lower borrowing costs. Brazil’s National Vehicle Manufacturers Association in Sao Paulo will release September vehicle sales data Oct. 4.

The central bank has cut the target lending rate by 5 percentage points since August 2011 to a record low 7.5 percent. The government has reduced bank reserve requirements and extended tax cuts on payrolls and consumer goods to spur Brazil’s economy.

Industrial production growth is proof of a gradual economic expansion after the country “left behind” a period of weak activity, Brazil Finance Minister Guido Mantega told reporters in Brasilia today.

Brazil’s trade surplus was smaller than analysts forecast in September, as both exports and imports declined in an economy struggling to recover from a yearlong slowdown. The surplus of $2.6 billion in September was down from $3.2 billion in August, a trailed a forecast of $2.7 billion, according to the median estimate from 18 analysts surveyed by Bloomberg.

Stocks in Europe fell as Spanish Prime Minister Mariano Rajoy told reporters in Madrid today that a bailout request wasn’t imminent.

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: David Papadopoulos at papadopoulos@bloomberg.net

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