Brazilian Swap Rates Head for Fourth Weekly Drop; Real Declines

Brazil’s swap rates headed for a fourth week of declines on speculation a faltering economy will prompt policy makers to limit increases in borrowing costs.

Swap rates on the contract maturing in January 2015 dropped 27 basis points, or 0.27 percentage point, to 9.35 percent as of 10:10 a.m. in Sao Paulo. They climbed two basis points today. The stretch of weekly decreases is the longest since April. The real depreciated 0.4 percent to 2.2371 per U.S. dollar, paring its rally this week to 1.4 percent.

A stronger real “could bring some relief for inflation, together with monetary tightening,” Roberto Padovani, the chief economist at Votorantim Ctvm in Sao Paulo, said in a telephone interview.

Analysts covering Brazil have reduced their 2013 growth forecast for nine straight weeks, cutting it to 2.31 percent in a central bank survey of about 100 economists published July 15. Annual inflation slowed to 6.4 percent in the month through mid-July, within the central bank’s 2.5 percent to 6.5 percent target range, from 6.67 percent, a report showed today.

Brazil’s central bank sold foreign-exchange swap contracts worth $995 million yesterday to support the real, the 15th day of auctions since May 31. It plans another auction today.

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. The central bank said in minutes of last week’s policy meeting that it is appropriate to maintain the pace of increases in borrowing costs to curb inflation.

Consumer prices as measured by the IPCA index climbed 0.07 percent in the month through mid-July after rising 0.38 percent in the previous 30 days. The median forecast of economists surveyed by Bloomberg was for a 0.11 percent rise.

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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