Brazilian Swap Rates Fall as China Export Jump Fuels Real Gain

Brazil’s swap rates fell for a fourth day as investors speculated that a rebound in the currency will help curb inflation and allow policy makers to limit borrowing-cost increases.

Rates on the swaps contract due in January 2015 fell seven basis points, or 0.07 percentage point, to 10.22 percent at 11:38 a.m. in Sao Paulo. The real advanced 0.9 percent to 2.2866 per dollar after gaining 3.4 percent last week, the most since January 2012.

The currency strengthened after data showed exports from China, the country’s biggest trading partner, rose more than economists forecast. Brazil’s central bank has lifted benchmark borrowing costs 1.75 percentage point this year to 9 percent.

“More growth abroad favors commodity prices and gives Brazil some breathing room,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimentos, said by phone from Sao Paulo. The real at 2.30 per dollar “gives an impression that the rate hikes will be less intense,” he said.

The central bank sold 10,000 foreign-exchange swap contracts worth $497.6 million today, part of a $60 billion intervention program to support the real announced last month.

The real has lost 6.8 percent in the past three months, the most among 16 major currencies tracked by Bloomberg.

Policy makers on Aug. 28 raised the benchmark Selic by a half-percentage point to 9 percent, the fourth straight increase and the fastest pace of monetary tightening of any major world economy tracked by Bloomberg.

Annual inflation as measured by the IPCA index decelerated in August to 6.09 percent, the slowest since December, the national statistics agency said Sept. 6. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus 2 percentage points.

The central bank considers the current pace of key rate increases to be appropriate, as a weaker real pressures short-term inflation, policy makers said in the minutes to their Aug. 27-28 meeting.

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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