Brazil’s Swap Rates Decline as Inflation Slows; Real Advances

Brazil’s swap rates fell for the first time in seven days after a report showed inflation slowed, spurring speculation that policy makers will limit increases in borrowing costs.

Swap rates on the contract due in January dropped five basis points, or 0.05 percentage point, to 8.08 percent at 10:16 a.m. in Sao Paulo. They rose on May 20 to 8.13 percent, the highest since April 17, and held at that level yesterday. The real snapped six days of declines, appreciating 0.2 percent to 2.0364 per U.S. dollar.

Consumer prices, as measured by the IPCA-15 index, climbed 0.46 percent in the month through mid-May after rising 0.51 percent in the prior period, the national statistics agency reported today in Rio de Janeiro. The median forecast of economists surveyed by Bloomberg was for a 0.49 percent increase. Annual inflation slowed to 6.46 percent, within the central bank’s target range of 2.5 percent to 6.5 percent, from 6.49 percent at the end of April.

“The IPCA was lower than expected,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA in Sao Paulo, said in a telephone interview. “This opens the door for the central bank to maintain the rhythm of 25 basis point increases.”

Policy makers raised the target lending rate last month by a quarter-percentage point to 7.50 percent to curb inflation. The central bank’s board next meets May 28-29.

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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