Brazil Swap Rates Drop Before Central Bank Minutes; Real Rises

Brazil’s swap rates fell, reversing an earlier increase, on speculation the central bank will reiterate in minutes to be released tomorrow its pledge to keep borrowing costs at record lows to support the economy.

Swap rates on the contract due in January 2015 dropped two basis points, or 0.02 percentage point, to 7.86 percent at the close in Sao Paulo. The real appreciated 0.3 percent, the biggest gain since Jan. 10, to 2.0360 per U.S. dollar.

The central bank held the target lending rate at a record low 7.25 percent for a second straight meeting on Jan. 16, saying the domestic recovery was “less intense” than expected and the balance of risks for inflation worsened in the short term. Swap rates rose earlier today as a report showed inflation accelerated more than analysts forecast.

“The market was up in the morning on bad inflation data, and then the perception returned that the central bank will not raise rates,” Andre de Carvalho Ferreira, director at Futura Corretora in Sao Paulo, said in a phone interview. “The meeting minutes will say tomorrow that everything is worse and the rate stays the same.”

The International Monetary Fund cut its forecast for Brazil’s economic growth in 2013 to 3.5 percent from a 4 percent projection in October. The world economy will also expand 3.5 percent this year, less than a previous forecast of 3.6 percent, the Washington-based IMF reported today.

Brazil’s IPCA-15 consumer price index increased 0.88 percent in the month through mid-January, compared with 0.69 percent in the prior period, the national statistics agency reported today. The highest forecast of 38 economists surveyed by Bloomberg was for a 0.86 percent advance.

The real was supported as foreign direct investment rose to $5.4 billion in December from $4.6 billion in the prior month and higher than the median forecast of $4.1 billion in a survey of 16 economists by Bloomberg.

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