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Brazil Swap Rates Fall as Economists Lower Outlook; Real Drops

April 22 (Bloomberg) -- Brazil’s swap rates fell to a two-week low after analysts in a central bank survey lowered their year-end forecast for the benchmark lending rate.

Swap rates due in January 2014 dropped five basis points, or 0.05 percentage point, to 7.82 percent in Sao Paulo, the lowest level on a closing basis since April 8. The real depreciated 0.5 percent to 2.0211 per U.S. dollar.

“The market is continuing the decompression of the swap rate curve,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil in Sao Paulo, said in a telephone interview.

About 100 economists in a weekly central bank survey cut their median year-end forecast for the target lending rate to 8.25 percent from 8.50 percent. The central bank’s board voted 6 to 2 on April 17 to raise its benchmark to 7.50 percent from a record low 7.25 percent. A survey by Bloomberg showed that 18 of 58 analysts forecast an increase of a half-percentage point.

The split decision indicated “no commitment for a rate hike cycle,” Siobhan Morden, the head of Latin America fixed income at Jefferies Group Inc. in New York, wrote in a research report e-mailed to clients. “It is clear that the central bank will deliver as few rate hikes as possible.”

Policy makers said last week in their statement that “external uncertainties” required “that monetary policy be managed with caution.” Minutes of last week’s meeting are scheduled to be released on April 25.

March Inflation

Consumer prices rose at an annual rate of 6.59 percent in March, exceeding the upper limit of the central bank’s preferred range for the first time since November 2011. The target is 4.5 percent, plus or minus 2 percentage points.

Brazil, the world’s biggest ethanol exporter, plans to reduce taxes and extend low-cost credit lines for producers to help boost output and lower prices, a Finance Ministry official with knowledge of the plan said.

The measure may be announced after a meeting of producers with President Dilma Rousseff and Finance Minister Guido Mantega today as reported by Folha de S.Paulo earlier, said the official, who asked not to be named because he wasn’t authorized to make public comments. The plan includes cutting the PIS/Cofins tax on mill revenue, the official said.

The real declined today along with most of the other major dollar counterparts tracked by Bloomberg as an unexpected drop in U.S. home sales dimmed the global growth outlook and curbed demand for emerging-market assets.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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