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Brazil Swap Rates Fall to Record Before Copom Meets; Real Falls

Brazil’s swap rates dropped to a record on bets the central bank will signal at a two-day meeting beginning today its intent to keep borrowing costs low.

Policy makers have cut the benchmark lending rate by 5.25 percentage points since August 2011 to an all-time low 7.25 percent to bolster growth that economists surveyed by Bloomberg forecast to slow to 1.5 percent this year.

“There is no reason for the central bank to change its signal for a stable rate for a prolonged time,” Luis Otavio de Souza Leal, the chief economist at Banco ABC Brasil SA in Sao Paulo, said in a phone interview.

Swap rates due in January 2014 slid five basis points, or 0.05 percentage point, to 7.28 percent. The real depreciated 0.1 percent to 2.0838 per dollar after a decline to a three-year intraday low of 2.1172 on Nov. 23 spurred the central bank to intervene in the currency market.

Brazil’s monetary policy committee, known as Copom, will hold the target lending rate stable until July, when they will raise the rate by 25 basis points, trading in swap rates show.

The real rallied the most in four months on Nov. 23 as the central bank auctioned currency swaps for the first time since June, selling 32,500 contracts maturing in December valued at $1.6 billion.

“The exchange rate market is still under the effect of the central bank’s intervention with currency swaps,” Felipe Brandao, an emerging-markets analyst at ICAP Brasil DTVM in Sao Paulo, said in a phone interview.

Real’s Decline

The real has still fallen 2.5 percent this month, the worst performance among emerging-market currencies tracked by Bloomberg after India’s rupee.

The monetary authority sold currency swaps from May 18 through June 29 as the real fell to what was then a three-year low. A decline in the currency hurts Brazilian companies whose expenses are mostly in dollars.

From August through October, the bank sold reverse currency swaps to keep the real weaker than 2 per dollar and make Brazil’s exporters more competitive. The currency traded in a range of 2 to 2.1 per dollar from July 4 through Nov. 21.

Finance Minister Guido Mantega used the term “currency war” in 2010 to describe the use of monetary policy by industrialized countries to boost their exports.

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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