Brazil Swap Rates Rise on Concern Weak Real Will Stoke Inflation

Brazil’s swap rates climbed on speculation a weakening real will stoke inflation and prompt the central bank to increase borrowing costs at a faster pace.

Swap rates on the contract due in January 2015 rose five basis points, or 0.05 percentage point, to 8.29 percent at 10:04 a.m. in Sao Paulo, the highest level since April 25 on a closing basis. They are up two basis points this week. The real depreciated 0.2 percent to 2.0175 per dollar, extending its decline over the past 12 months to 3.2 percent. The currency has fallen 0.4 percent since May 3.

“There is a problem with the real’s depreciation causing risks of accelerating inflation,” Alfredo Barbutti, an economist at BGC Liquidez in Sao Paulo, said in a phone interview. “There are risks even though the government says the price increases are under control.”

The national statistics agency reported May 8 that consumer prices rose 6.49 percent in April from a year earlier, surpassing the 6.42 percent median forecast of 30 economists surveyed by Bloomberg. The central bank has a target range of 2.5 percent to 6.5 percent.

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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