Brazil Prices Leave Little Room to Ease, Central Banker Says

  • Short-term interest-rate swaps rose following comments
  • Traders, analysts were starting to bet on possible cuts

A central bank director in Brazil signaled benchmark borrowing costs are unlikely to go down any time soon as consumer prices continue to rise at a fast pace. Short-term interest-rate swaps increased.

“There is no room left for a relaxation of monetary conditions,” said the bank’s Monetary Policy Director Aldo Luiz Mendes, citing above-target inflation and “the mechanisms of inflationary inertia operating in our economy.” His comments, prepared to be delivered at an event in Sao Paulo, were posted online by the central bank Thursday.

Policy makers will focus on containing inflation, bringing it down to the 4.5 percent target in 2017, he said. Consumer prices surged 10.7 percent in January from the year before, exceeding the 6.5 percent ceiling of the target range for the 13th straight month.

The central bank is struggling to damp inflation without causing the recession to deepen. It kept borrowing costs unchanged at 14.25 percent last month for the fourth straight meeting, surprising most analysts who expected a quarter-point increase. Swaps fell after the decision on bets policy makers were considering to reduce rates to help revive growth.

Mendes sent short-term swap rates higher on Thursday as traders interpreted his remarks to mean the central bank may be more inclined to hike interest rates. The contract maturing in January 2017 increased 8 basis points to 14.32 percent in mid-afternoon trading.

The central bank “could raise rates if current inflation doesn’t come down as expected,” Jankiel Santos, chief economist at investment bank Haitong, said after the speech.

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