Brazilian Swap Rates Drop Most in a Week After Report

Brazil’s swap rates declined the most in a week after a report indicating slower-than-forecast inflation added to speculation that the central bank will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2017 fell 11 basis points, or 0.11 percentage point, to 12.34 percent at the close of trading in Sao Paulo, the biggest drop since April 8. The real snapped two days of declines, climbing 0.3 percent to 2.2367 per U.S. dollar.

The national statistics agency reported today that consumer prices rose 6.19 percent in the 12 months through mid-April, less than the 6.26 percent median forecast of economists surveyed by Bloomberg. The central bank’s official target is 4.5 percent plus or minus 2 percentage points.

“This data shows a reduced probability that inflation will be above 6.5 percent,” Thais Zara, the chief economist at Rosenberg Associados, said in an e-mailed research note to clients. “The data was below expectations, but it shows that the inflation outlook is still quite uncomfortable.”

To curb inflation, Brazil has raised its target lending rate nine consecutive times in the past year to 11 percent, the most increases among 49 central banks tracked by Bloomberg.

The report today indicates the central bank may refrain from further tightening of monetary policy before the October presidential election, Jose Francisco Goncalves, the chief economist at Banco Fator SA in Sao Paulo, said by phone.

Brazil will raise the target lending rate to 11.25 percent by the end of the year as inflation accelerates to 6.47 percent, according to the median forecasts of economists surveyed by the central bank in a report published April 14.

To support the currency and limit import price increases under a program announced in December, the central bank sold $197.9 million of foreign-exchange swaps today. It also extended the maturity on contracts worth $494 million.

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 editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Richard Richtmyer

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