Brazil Short-Term Swap Rates Drop as Bank Convenes; Real Rises

Brazil’s shorter-term swap rates declined on speculation the central bank will avoid stepping up increases in borrowing costs as the board begins a two-day monetary policy meeting today.

Swap rates on the contract due in January dropped one basis point, or 0.01 percentage point, to 8.14 percent at 10:05 a.m. in Sao Paulo. The real appreciated 0.1 percent to 2.0552 per U.S. dollar after declining yesterday to 2.0571, the weakest closing level since Dec. 24.

Policy makers raised the target lending rate last month by a quarter-percentage point to 7.50 percent. Inflation has remained above the 4.5 percent midpoint of their preferred range since central bank President Alexandre Tombini took office in January 2011.

“Apparently, there is an increase in bets that the central bank will maintain the pace of increases at 25 basis points,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimento in Sao Paulo, said in a phone interview.

The nation’s $2.5 trillion economy will expand 2.93 percent this year, down from last week’s median forecast of 2.98 percent, according to the central bank’s survey of about 100 analysts published yesterday. That compares with the monetary authority’s forecast of 3.1 percent growth.

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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