Brazilian Swap Rates Rise on Central Bank Signal; Real Declines

Brazil’s swap rates climbed to a three-week high on speculation the central bank will raise the target lending rate to 10 percent after signaling this week that it will maintain the pace of borrowing cost increases.

Swap rates on contracts due in January 2015 rose four basis points, or 0.04 percentage point, to 10.32 percent at 10:12 a.m. in Sao Paulo, the highest level on a closing basis since Sept. 17. They are up 18 basis points this week. The real depreciated 0.2 percent to 2.1856 per U.S. dollar, paring its gain this week to 1.2 percent, still the biggest among emerging-market currencies tracked by Bloomberg.

Policy makers raised borrowing costs on Oct. 9 by a half-percentage point for a fourth straight time and repeated language from their August statement that the increases will ensure slower inflation next year. Inflation was still more than a percentage point above the central bank’s 4.5 percent target at 5.86 percent in September.

“The statement by the monetary policy committee shows the central bank is focused on inflation,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil in Sao Paulo, said in a telephone interview.

Finance Minister Guido Mantega said in an interview that policy makers aren’t prevented from raising benchmark rate to 10 percent or higher if needed, Reuters reported. The Finance Ministry’s press office didn’t immediately respond to a request for comment from Bloomberg News.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@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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