Brazilian Swap Rates Climb as Unemployment Drops; Real Declines

Brazil’s swap rates rose as a drop in unemployment and a decline in the real added to speculation that central bankers will increase the target lending rate to 10 percent this month to curb inflation.

Swap rates on the contract maturing in January 2015 climbed nine basis points, or 0.09 percentage point, to 10.86 percent at 9:28 a.m. in Sao Paulo. The real declined 1.2 percent to 2.3004 per dollar in its biggest drop in two weeks. Markets in Brazil were closed yesterday for a holiday.

The national statistics agency reported today that the unemployment rate fell to 5.2 percent in October, below the 5.4 percent median estimate of 32 economists surveyed by Bloomberg. Inflation accelerated to 5.78 percent in the 12 months through mid-November, more than a percentage point higher than the central bank’s target. The real dropped as an index of China’s manufacturing slipped for the first time in four months, spurring concern that the recovery in Brazil’s largest trading partner is stalling.

Monetary policy is still loose, and this is maintaining demand and pressuring inflation,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimento in Sao Paulo, said in a telephone interview. “The data in China are troubling the currency market.’’

Brazil’s central bank extended the maturity on $989 million of currency swaps on Nov. 19 in the fifth straight session of rollover auctions. It sold $497 million of swaps today as part of a $60 billion intervention to bolster the real and curb import price increases.

Deficit Concern

The currency has pared its gain since the program was announced Aug. 22 to 5.9 percent on concern Brazil’s government budget deficit will lead to cut in the nation’s credit rating.

Brazil has raised the target lending rate to 9.50 percent from a record low 7.25 percent this year, the most among 49 nations tracked by Bloomberg, in a bid to cool consumer demand and hold down prices.

In China, the preliminary 50.4 reading for this month’s Purchasing Managers’ Index published today by HSBC Holdings Plc and Markit Economics compares with final reading of 50.9 in October. Readings above 50 indicate expansion.

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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