Brazil Swap Rates Fall on Delayed-Tightening Outlook; Real Gains

Brazilian swap rates dropped for a fifth straight day after a newspaper report indicated that the central bank will wait until May to lift borrowing costs from record lows instead of an increase next month.

Swap rates on the contract due in January 2015 declined six basis points, or 0.06 percentage point, to 8.47 percent at 10:21 a.m. in Sao Paulo. The real appreciated 0.1 percent to 1.9832 per U.S. dollar.

Interest-rate increases will be decided by the central bank, not the market, Folha de S. Paulo reported today, citing unidentified government assistants. The central bank declined to comment when reached by Bloomberg News. Industrial confidence dropped in March for the first time in four months, a report showed. Swap rates fell even as global stocks rallied as European policy makers weighed bailout options for Cyprus.

“The market may be adjusting to this news that the central bank will only raise rates in May,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA in Sao Paulo, said in a phone interview. “These factors are offsetting signs of improvement abroad that could have pressured rates upward.”

Minutes of the central bank’s March 5-6 meeting published last week indicated that an increase in the 7.25 percent target lending rate wasn’t imminent as policy makers said “a cautious management of monetary policy” was needed. The monetary policy committee will next meet April 16-17 and May 28-29.

An index of industrial confidence fell 2.3 percent this month to 104.2, according to a preview published today by the Getulio Vargas Foundation in Rio de Janeiro.

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

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