Brazil Swap Rates Rise as Inflation Exceeds Forecast: Real Gains

Brazil’s swap rates climbed to a four-month high after a report showed inflation was faster than forecast, fueling speculation that the central bank will raise borrowing costs to contain price gains.

Swap rates due in January 2016 rose three basis points, or 0.03 percentage point, to 8.58 percent at 9:44 a.m. in Sao Paulo, the highest level on a closing basis since Oct. 4. The real appreciated 0.3 percent to 1.9905 per dollar.

The Getulio Vargas Foundation reported that its IGP-DI index of producer, consumer and construction prices rose 0.31 percent in January, more than the 0.26 percent median forecast of 25 economists surveyed by Bloomberg.

“Inflation is still worrisome,” Pedro Tuesta, a senior economist who covers Latin America at 4Cast Inc., said in an interview from New York.

The outlook for inflation is getting worse in the “short term” while the economic recovery was less intense than expected, the central bank said in minutes of its Jan. 15-16 policy meeting. The board held the target lending rate at a record low 7.25 percent.

The real rallied to a level beyond 2 per U.S. dollar on Jan. 28 for the first time since July after the central bank the central bank’s target range for 28 consecutive months. The IPCA index of consumer prices rose 5.84 percent in December from a year earlier, quickening from the 5.53 percent annual pace in the prior month.

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