Brazilian swap rates are posting the biggest monthly increase since December after the central bank predicted it will fail to slow inflation to its target in 2016, adding to speculation borrowing costs will rise further.
The contracts show policy makers will boost interest rates at least twice more in 2015 as they try to tame the fastest consumer-price increases in 11 years. The bank’s board, led by its President Alexandre Tombini, raised the benchmark rate to 13.75 percent this month, the highest level since January 2009.
“It seems very clear that more hikes are going to come,” Ipek Ozkardeskaya, an analyst at London Capital Group, said by e-mail. “Inflationary pressures remain relatively high in Brazil, which requires the central bank back in the game.”
Brazilian policy makers are caught between accelerating inflation and an economy that’s poised for the worst recession in 25 years. Consumer prices will rise 9 percent in 2015, then inflation will slow to 4.8 percent by the end of 2016, if the benchmark Selic remains at current levels, the central bank said Wednesday. Still, that’s above the 4.5 percent target.
Swap rates due in January 2017 advanced 0.1 percentage point to 13.94 percent at the close of trade in Sao Paulo. The contract is up 0.62 percentage point this month.
The real fell 0.7 percent to 3.0984 per dollar, after gaining as much as 0.4 percent earlier Wednesday. The currency is down 14 percent this year, the most among 24 emerging markets
In a sign of reduced concern over the currency’s fluctuations, the central bank extended the maturity on 5,200 foreign-exchange swap contracts Wednesday, down from 6,300 earlier this month and 8,100 in May.