Brazil Swap Rates Fall on Unemployment; Real Little Changed

Brazil’s longer-term swap rates dropped as the unemployment rate rose in January more than forecast, bolstering speculation policy makers will refrain from increasing borrowing costs amid tepid economic growth.

Finance Minister Guido Mantega said in New York that February inflation has been more “benign” and that the government has no plans to change the transactions tax known as IOF. The central bank will decide next week whether to hold the target rate at a record low 7.25 percent for a third meeting to support the economy even as inflation has exceeded the 4.5 percent midpoint of its target range for more than two years.

Swap rates on the contract due in January 2015 decreased two basis points, or 0.02 percentage point, to 8.45 percent. The real was little changed at 1.9823 per dollar.

“The unemployment rate was a bit higher than expected, and that is helping to bring down rate futures,” Flavio Serrano, a senior economist at Banco Espirito Santo de Investimento SA in Sao Paulo, said by phone. “We still need more data to see if the labor market is really deteriorating.”

Brazil’s jobless rate increased to 5.4 percent last month from a record low 4.6 percent in December, the national statistics agency reported today. The median forecast of 28 economists surveyed by Bloomberg was 5.2 percent.

While inflation is slowing, the government is still paying attention, Mantega said at a New York event. The IPCA-15 index of consumer prices rose 0.68 percent in the one month through mid-February after a 0.88 percent advance in the prior period, the national statistics agency reported Feb. 22.

Rate Outlook

“It seems that his comments suggest there won’t be any rate hikes in the short term,” Joao Junior, a fixed-income analyst at ICAP in Sao Paulo, said in a phone interview.

Mantega said “it is good” that the currency has stabilized at a more realistic level.

The real rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank intervened in the currency market as inflation accelerated. Brazil pushed the real down 9 percent in 2012 and 11 percent in the prior year as Mantega said major economies were debasing currencies such as the dollar while driving up those of developing nations.

Brazil exempted foreign investment in real estate funds traded on the stock exchange from the IOF tax on Jan. 31, spurring speculation that inflows will help sustain the real.

Brazil sees a small improvement in international market volatility and will issue bonds in coming weeks, Treasury Secretary Arno Augustin said to reporters in Brasilia today. Issuing bonds would demonstrate once again that Brazil has solid fundamentals, he added.

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