Brazil Swap Rates Climb on Industrial Confidence; Real Declines

Brazil’s swap rates rose as a boost in industrial confidence fueled speculation that the central bank will increase borrowing costs this year.

Swap rates due in July 2014 climbed two basis points, or 0.02 percentage point, to 7.40 percent at 10:13 a.m. in Sao Paulo after falling eight basis points yesterday, the most since Dec. 6. The real fell 0.1 percent to 2.0433 per dollar.

The industrial confidence index increased to 106.6 in January, the highest level since June 2011, the Getulio Vargas Foundation reported today in a preview. Industrial capacity rose to 84.5 percent.

“Swap rates are on the rise after there was an improvement in industrial confidence and capacity,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil in Sao Paulo, said in a phone interview. “There was also a jump in confidence in Germany, and if it is confirmed that the German economy is improving, that will help the European recovery and favor growth in Brazil.”

The ZEW Center for European Economic Research in Mannheim said its German index of investor and analyst expectations jumped to 31.5 this month from 6.9 in December. That is the highest level since May 2010

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@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