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Brazil Swap Rates Rise as Tombini Cites Inflation; Real Advances

Brazil’s swap rates climbed to a three-week high after central bank President Alexandre Tombini said he is committed to bringing inflation down to the country’s 4.5 percent target.

Swap rates on contracts due in January 2015 increased seven basis points, or 0.07 percentage point, to 10.35 percent in Sao Paulo, the highest level since Sept. 17. They are up 21 basis points this week on speculation central bankers will lift the benchmark lending rate to 10 percent this year.

Policy makers raised borrowing costs on Oct. 9 by a half-percentage point for a fourth straight time and repeated language from their August statement that the increases will ensure slower inflation next year. The central bank is “committed to bringing inflation down,” Tombini told reporters today in Washington, where he was attending International Monetary Fund meetings.

“The statement by the monetary policy committee shows the central bank is focused on inflation,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil in Sao Paulo, said in a telephone interview.

The central bank’s board voted unanimously this week to raise the target lending rate to 9.5 percent from 9 percent. The jump from a record low 7.25 percent since April is 0.75 percentage point more than in Indonesia, which carried out the second-biggest rate increase this year among 49 major economies. Brazil’s next monetary policy meeting is Nov. 26-27.

Inflation Target

While inflation slowed in September for a third straight month, the 5.86 percent annual rate was still a percentage point above the midpoint of the central bank’s 2.5 percent to 6.5 percent range.

The currency advanced 0.2 percent to 2.1761 per U.S. dollar today, extending its gain this week to 1.6 percent, the biggest among emerging-market currencies tracked by Bloomberg.

The real has gained 12 percent since Aug. 22, when the central bank announced a $60 billion intervention program to support the currency and curb import prices. That rally from a 4 1/2-year low is the biggest among all of the world’s dollar counterparts tracked by Bloomberg, leaving the currency down 9.2 percent in the past six months.

Analysts surveyed weekly by the central bank forecast inflation will accelerate to 5.95 percent in 2014 from 5.82 percent at the end of this year, according to the most recent median estimates published Oct. 7.

The IMF said this week that inflation in Brazil threatens to damp consumption, making interest-rate increases “appropriate.” The fund reduced its 2014 growth forecast for Latin America’s biggest economy to 2.5 percent from 3.2 percent.

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