Brazil Swap Rates Fall to Two-Month Low on Central Bank Comments

Brazil’s swap rates declined to a two-month low as comments from central bank director Luiz Awazu Pereira added to speculation that further increases in borrowing costs will be limited.

Swap rates on contracts maturing in April 2016 fell four basis points, or 0.04 percentage point, to 11.96 percent at the close of trade in Sao Paulo, the lowest level since Feb. 27. The real declined less than 0.1 percent to 2.2149 per dollar.

Brazil “took early and sizable action on monetary policy to address domestic inflationary pressure,” Awazu said today at an event in Paris. To curb price increases, the central bank has lifted the target lending rate to 11 percent from a record low 7.25 percent since April 2013 in the longest stretch of increases among major economies.

“Awazu signaled the rate-hike cycle may be almost done as policy makers continue to highlight” steps taken to contain inflation, Eduardo Saurez, a Latin America foreign-exchange strategist at Bank of Nova Scotia, said in an e-mailed research note to clients.

Economists in a central bank survey published yesterday lowered their median forecast for inflation in 2014 to 6.39 percent from 6.50 percent a week earlier. They lifted their economic growth estimate to 1.69 percent from 1.63 percent.

Finance Minister Guido Mantega told reporters today that plans to raise taxes on beer and soda won’t go into effect until September, after the World Cup.

The central bank said that currency trading will be from 9 a.m. to 1 p.m. on days of Brazil matches during the soccer tournament, which will start June 12.

Real’s Rally

The real has climbed 6.8 percent this year, 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 May 9 on Folha de Sao Paulo’s website indicated. 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 for every other candidate.

Brazil sold $198.3 million of foreign-exchange swaps today under a program announced in December to support the currency and limit import price increases. It also extended the maturity on contracts worth $247.6 million.

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

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

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