Brazil Swap Rates Decline on Inflation Forecast; Real Weakens

Brazilian swap rates fell for a sixth day as economists lowered their inflation forecast for the South American country next year.

Swap rates on the contract due in January 2015 fell one basis point, or 0.01 percentage point, to 7.79 percent at 6 p.m. in Sao Paulo. The real depreciated 0.3 percent to 2.0329 per dollar.

A central bank survey published today showed economists covering Latin America’s largest economy lowered their 2013 inflation forecast to 5.40 percent from 5.42 percent a week ago, bolstering speculation that the central bank will keep the benchmark rate at a record-low 7.25 percent into next year.

“The central bank survey was benign for inflation,” Andre Perfeito, chief economist at Gradual Investimentos, said by phone from Sao Paulo. “The data expected to come out this week in Brazil won’t be exceptional.”

Swap rates also declined as concern Hurricane Sandy will hurt the U.S. recovery fueled bets that weaker global growth will help cool inflation in Brazil and allow borrowing costs to remain low. U.S. treasuries rose, pushing 10-year note yields to almost a two-week low in an abbreviated trading session, amid concern Sandy will disrupt business.

Brazilian policy makers cut the target lending rate for a 10th straight meeting Oct. 10 to spur growth in an economy posting the slowest growth among major emerging markets. Analysts left their 2012 growth forecast for Brazil unchanged for a third week at 1.54 percent, which would be the weakest since 2009, according to the central bank survey of about 100 economists published today.

Emerging-Market Currencies

Industrial production in Brazil probably contracted 0.5 percent in September, following a 1.5 percent gain in August, according to the median estimate of 40 economists surveyed by Bloomberg. The data will be released Nov. 1.

Most emerging-market currencies depreciated against the dollar as concern the European debt crisis is weighing on global growth increased demand for haven assets. The real’s drop was limited by speculation the central bank will intervene to keep it trading within a small range, Perfeito said.

“The market is locked because of the actions of the central bank,” he said.

The central bank sold reverse currency swaps twice last week to support exporters by preventing appreciation.

The bank sold $1.6 billion in reverse currency swaps on Oct. 23, $1.3 billion on Oct. 5, $5.7 billion of contracts Sept. 12 through Sept. 17 and $350 million on Aug. 21 to weaken the real. The August reverse swaps were the first since March.

2012 Performance

The real has lost 8.2 percent this year, the worst performance among the 16 most-traded currencies against the dollar.

Brazil’s central government in September posted its smallest primary surplus since June as stimulus spending continued to rise faster than tax revenue.

The central government’s surplus excluding interest payments was 1.3 billion reais ($640 million) in September, down from 1.6 billion reais in August, the Treasury said in a statement distributed in Brasilia today. The median estimate from nine analysts surveyed by Bloomberg was for a 1.4 billion reais surplus. September’s number was the smallest since a 1.1 billion reais surplus in June and was the lowest for the month since 2009.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE