Brazil Swap Rates Drop as Economists Cut GDP Outlook; Real Slips

Brazil’s swap rates fell to a three-week low after economists cut their growth forecasts, spurring speculation that the central bank will limit the increase in borrowing costs at a policy meeting this week.

Swap rates due January 2015 declined eight basis points, or 0.08 percentage point, to 9.59 percent at 10:20 a.m. in Sao Paulo, the lowest level since June 14 on a closing basis. The real depreciated 0.1 percent to 2.2543 per U.S. dollar.

About 100 economists in a central bank survey cut the median forecast for 2013 growth to 2.34 percent from 2.40 percent a week earlier. The central bank will increase the target lending rate by a half-percentage point to 8.50 percent on July 10, according to the median forecast of economists surveyed by Bloomberg.

“There is actually more room for downward adjustments in coming weeks” to economic growth forecasts, Enestor Dos Santos, economist at BBVA, said in a phone interview from Madrid. “We’re starting to see the impact of protests on consumption and the negative impact of inflation.”

Demonstrations swelled last month to more than 1 million people and spread from Rio de Janeiro, Sao Paulo and the capital, Brasilia, to cities across the country. The protests were sparked by an increase in bus fares and transformed into a catch-all for discontent over poor public services, corruption and inflation.

Consumer prices rose 0.23 percent in the month ended yesterday, the Getulio Vargas Foundation reported today. The median forecast of economists surveyed by Bloomberg was for a 0.33 percent increase.

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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