Brazil Swap Rates Decline on Borrowing-Costs Outlook; Real Drops

Brazil swap rates fell to a two- week low as analysts in a central bank survey lowered their forecast for the target lending rate, adding to speculation that increases in borrowing costs will be limited.

Swap rates due in January 2014 dropped four basis points, or 0.04 percentage point, to 7.83 percent at 10:18 a.m. in Sao Paulo, the lowest level on a closing basis since April 8. The real depreciated 0.1 percent to 2.0126 per dollar.

“The market is continuing the decompression of the swap rate curve,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil in Sao Paulo, said in a telephone interview.

About 100 economists in a weekly central bank survey cut their median year-end forecast for the target lending rate to 8.25 percent from 8.50 percent. The central bank’s board voted 6 to 2 on April 17 to raise it to 7.50 percent from a record low 7.25 percent. A survey by Bloomberg showed that 18 of 58 analysts forecast an increase of a half-percentage point.

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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