Brazil Swap Rates Drop as GDP Trails Forecasts; Real Declines

Brazil’s swap rates fell, extending their weekly drop to the biggest this year, as fourth-quarter economic growth trailed forecasts, damping speculation that the central bank will raise borrowing costs to curb inflation.

Swap rates on the contracts due in April 2014 declined four basis points, or 0.04 percentage point, to 7.76 percent at 10 a.m. in Sao Paulo. They have dropped 23 basis points this week, the most since the five days ended Dec. 7. The real depreciated 0.2 percent to 1.9829 per U.S. dollar and has weakened 0.5 percent since Feb. 22.

“The weaker GDP growth reinforces the idea that the economy is having a weak recovery and removes the urgency of rate hikes,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimento SA in Sao Paulo, said in a telephone interview.

Brazil’s gross domestic product grew 0.6 percent in the fourth quarter, compared with revised 0.4 percent increase in the prior three months, the national statistics agency reported today. The median forecast of 37 analysts surveyed by Bloomberg was for growth of 0.8 percent.

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 preferred range for more than two years.

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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