Brazil Swap Rates Fall; Real Gains on Banco do Brasil IPO Plan

Brazil’s swap rates dropped from a two-week high on speculation the country’s sputtering economic expansion will prevent the central bank from raising benchmark borrowing costs.

Swap rates on the contract due in January 2016 fell nine basis points, or 0.09 percentage point, to 8.97 percent. The real appreciated 0.5 percent to 2.0150 per dollar today.

The currency gained as investors speculated a $6 billion initial public offering for the insurance unit of Banco do Brasil SA, Latin America’s biggest lender by assets, would bring more dollars into the country, according to Carlos Kawall, the chief economist at Banco Safra SA in Sao Paulo.

“Since this is such a big offering, there’s an expectation that there will be a lot of participation from foreign investors,” Kawall said in a phone interview. “The real is benefiting from the expectation of those flows.”

Brazil had net inflows of $391 million last month through March 28, the central bank reported yesterday. Year-to-date net outflows were $2.1 billion.

The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by reining in gains.

Tombini View

Swap rates rose yesterday on central bank President Alexandre Tombini’s Senate testimony this week that board members will wait for March inflation figures and other data before deciding on the next policy steps.

Consumer prices rose 6.31 percent in February from a year earlier, the fastest pace in 14 months. Inflation probably accelerated to 6.6 percent last month, according to the median forecast of economists surveyed by Bloomberg before the April 10 report. Policy makers maintain an inflation target of 4.5 percent, plus or minus 2 percentage points.

Minutes of the central bank’s March 5-6 meeting indicated that an increase in the benchmark lending rate from a record low 7.25 percent wasn’t imminent as policy makers said “a cautious management of monetary policy” was needed.

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