Brazil Swap Rates Drop as Services Confidence Falls; Real Gains

Brazil’s swap rates fell for a fourth day as a decrease in the services confidence index damped speculation that the central bank will raise borrowing costs to contain inflation.

Swap rates due in January 2015 declined four basis points, or 0.04 percentage point, to 8.36 percent at 10:16 a.m. in Sao Paulo. The real appreciated 0.1 percent to 1.97 per dollar, extending its rally in February to 1.1 percent, the biggest among 25 emerging-market currencies.

“The swap rates market is reacting to the drop in confidence in the service sector,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil, said in an interview.

The central bank will decide next week whether to hold the target lending rate at a record low 7.25 percent for a third straight meeting to support the economy even as inflation has exceeded the 4.5 percent midpoint of its target range for more than two years.

Brazil’s services confidence index fell 2.7 percent in February from a month earlier to 122.1, the Getulio Vargas Foundation reported today.

President Dilma Rousseff said at an event yesterday in Brasilia that the government needs to maintain a flexible currency policy. A photo on the front page of the daily newspaper Valor Economico shows her holding a note saying, “affirm inflation control as a value in and of itself.”

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

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