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Brazil Swap Rates Rise on Inflation Outlook; Real Little Changed

Brazilian swap rates rose the most in five weeks as concern that inflation is quickening in Latin America’s biggest economy damped speculation policy makers will further cut benchmark borrowing costs this week.

Swap rates on the contract due in January 2014 rose six basis points, or 0.06 percentage point, to 7.45 percent in the biggest increase on a closing basis since Aug. 30. The real was little changed at 2.0297 per dollar.

Rates dropped the most since May last week after Luiz Awazu Pereira said that the period of slow global growth will “be more persistent and last longer.”

“The market exaggerated with the fall in rates after Awazu’s comments, and today inflation indicators showed an acceleration that was a bit of a surprise,” Eduardo Velho, chief economist at Planner Investimentos, said in a phone interview from Sao Paulo. “Bets on another 25-basis-point cut are dominant, but the market will go into the Copom meeting divided.”

The IGP-DI index of inflation rose 0.88 percent in September, the Getulio Vargas Foundation reported today. The median estimate of 28 economists surveyed by Bloomberg was for a 0.83 percent increase. The gauge is composed of 60 percent wholesale prices, 30 percent consumer prices and 10 percent construction costs.

Consumer prices as measured by the IPCA inflation index will end the year 5.42 percent higher, according to the median forecast of a central bank survey of about 100 economists published today. The projection last week was for a 5.36 percent increase. Brazil targets inflation of 4.5 percent plus or minus two percentage points.

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