Brazil Swap Rates Drop as April Inflation Slower Than Forecast

Brazilian swap rates fell for the first time in three days as a report indicated that annual inflation accelerated less than forecast in April.

Swap rates on contracts maturing in January 2017 decreased eight basis points, or 0.08 percentage point, to 12.12 percent. They were down four basis points this week. The real gained 0.1 percent to 2.2128 per U.S. dollar and was up 0.4 percent on the week.

Traders added to speculation that the central bank will limit further increases in borrowing costs after consumer prices climbed 6.28 percent in the 12 months through April, slower than the 6.41 percent increase forecast by economists surveyed by Bloomberg. To contain inflation, policy makers have raised the target lending rate from a record low 7.25 percent in April 2013 to a two-year high of 11 percent.

“Inflation in April was below forecast, which gives room for the central bank to stop with hikes,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said by phone. “Swap rates should adjust down as a consequence.”

Consumer prices rose 0.67 percent in April from a month earlier, compared with a 0.92 percent increase in March. While the annual inflation rate was less than economists forecast, the pace was still the fastest since June.

Food and beverage prices climbed 1.19 percent last month after increasing 1.92 percent in March. Transportation rose 0.32 percent, compared with the prior 1.38 percent.

Real’s Gain

The real has climbed 6.8 percent this year, rising partly on speculation President Dilma Rousseff will face a runoff in the October election after overseeing faltering growth.

Her support among voters slipped to 37 percent from 38 percent in April, a Datafolha survey published today on Folha de Sao Paulo’s website indicated. The poll was taken May 7-8 and had a margin of error of plus or minus 2 percentage points.

To win in the first round a candidate needs to have more than 50 percent support or attract more votes than the sum of those of all other candidates.

Economists in a central bank survey published May 5 maintained their forecast that the real will decline to 2.45 per dollar this year, according to the median of about 100 estimates. They predicted that inflation will accelerate to 6.5 percent, the upper limit of the official target range.

Brazil sold today $198.5 million of foreign-exchange swaps to support the currency and limit import price increases under a program announced in December. It also extended the maturity on contracts worth $247.3 million.

To contact the reporter on this story: Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Bradley Keoun

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