Brazil Swap Rates Decline on Slower Inflation; Real Pares Gain

Brazil’s swap rates declined to a one-month low after a report showed inflation slowed, damping speculation that the central bank will increase borrowing costs at a faster place.

Swap rates on the contract due in January 2015 fell six basis points, or 0.06 percentage point, to 9.49 percent at 9:48 a.m. in Sao Paulo, the lowest level on a closing basis since June 11. The real gained less than 0.1 percent to 2.2191 per U.S. dollar after rising 0.5 percent earlier today and rallying 2.1 percent yesterday in the biggest gain since June 2012.

The Getulio Vargas Foundation reported today that its IGP-10 inflation index, which monitors wholesale, construction and consumer prices, increased 0.43 percent in the month ended July 10, less than the 0.56 percent forecast of 21 economists surveyed by Bloomberg and the prior 0.63 percent increase.

“The inflation indexes are showing improvement,” Gustavo Rangel, the chief Latin America economist at ING Bank NV in London, said in a telephone interview. “This doesn’t eliminate the need for more rate increases at the next meeting, but the spike in inflation becomes a little less worrying.”

Policy makers raised the target lending rate by a half-percentage point to 8.50 percent on July 10 in the third increase this year from a record low 7.25 percent. They raised it by a quarter-percentage point in April and 50 basis points in May. The next meeting is scheduled for Aug. 27-28.

The real pared its gain today after a U.S. report showed consumer prices rose more than forecast, encouraging speculation that the Federal Reserve will curtail a stimulus program that has buoyed emerging-market assets.

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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