Brazil Swap Rates Surge on Tombini Inflation Comment; Real Gains

Brazil’s swap rates climbed to a six-month high after the central bank signaled it is concentrating on curbing inflation, increasing speculation that policy makers will raise borrowing costs this year.

Swap rates on the contract due in January 2014 rose seven basis points, or 0.07 percentage point, to 7.90 percent at 9:58 a.m. in Sao Paulo, the highest level since Aug. 24 on a closing basis. The real gained 0.3 percent to 1.9661 per dollar.

Traders increased bets policy makers will lift the target lending rate from a record low 7.25 percent after central bank President Alexandre Tombini said in an interview with the Wall Street Journal published yesterday that containing inflation is a priority and that increases in consumer prices have been more resistant than policy makers would like. The central bank confirmed the interview.

“Tombini has been questioned a lot about the role of the central bank,” Ures Folchini, the head of fixed income at Banco WestLB do Brasil SA in Sao Paulo, said by phone. “He is reinforcing its commitment to its mandate to combat inflation.”

The central bank has reduced the target lending rate by 5.25 percentage points since August 2011 in the most aggressive cuts among Group of 20 nations. For more than two years, annual inflation has exceeded the 4.5 percent midpoint of policy makers’ target range.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.