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Brazil Swap Rates Fall on Central Bank Sign; Real Little Changed

Brazil’s swap rates dropped the most in three months after central bank minutes indicated that an increase in the target lending rate isn’t imminent.

Swap rates due in January 2014 fell 12 basis points, or 0.12 percentage point, to 7.84 percent today in Sao Paulo for the biggest decline since Dec. 6. The real was little changed at 1.9717 per U.S. dollar, snapping a three-day losing streak.

The central bank said in minutes of last week’s meeting, published today, that “a cautious management of monetary policy” is needed. Policy makers held the target lending rate at a record low 7.25 percent on March 6 and eliminated a pledge made in October to leave borrowing costs unchanged for a “prolonged” period.

“Mentioning that monetary policy should be administered with caution is a clear message that there won’t be a rate hike in the short term,” Paulo Petrassi, managing partner at Leme Investimentos in Sao Paulo, said in a phone interview. “It removes the possibility of a rate increase in April.”

Economists cut their 2014 growth forecasts in a survey published this week. Gross domestic product will expand 3.50 percent next year, according to the median estimate of about 100 analysts surveyed by the central bank, down from the prior projection of 3.65 percent.

Brazil’s retail sales including autos, auto parts and construction materials rose 7.1 percent in January from a year earlier, less than the 8 percent median forecast of 18 economists surveyed by Bloomberg.

Real Trading

The real reached a 10-month high of 1.9442 on March 8 before the central bank sold $1 billion of reverse foreign- exchange swaps on March 11 to weaken the currency.

The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by preventing excessive gains.

Brazil pushed the real down 9 percent in 2012 and 11 percent in the prior year as Finance Minister Guido Mantega said developed economies were debasing currencies such as the dollar while driving up those of emerging nations.

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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