Brazil Swap Rates Rise on Awazu’s Inflation Comment; Real Gains

Brazil’s shorter-term swap rates rose, erasing earlier declines as a central bank director said policy makers had no disagreement this week on whether to raise borrowing costs as they debated the timing of the increases.

Luiz Awazu Pereira, the monetary authority’s director for international affairs, said today at an event in Washington that inflation is high and persistent and that industry is recovering. Awazu voted against an increase.

Swap rates due January 2014 rose three basis points to 7.87 percent at close in Sao Paulo, after earlier dropping as much as six basis points. The contracts fell 30 basis points this week, the biggest one-week decline since October. The real gained 0.4 percent to 2.0111 per dollar.

“Awazu’s comment was that the debate wasn’t about if, but when to raise rates,” said Vladimir Caramaschi, chief strategist at Credit Agricole, in a phone interview from Sao Paulo. “The divergence is over the timing.”

The central bank’s board this week voted 6 to 2 to raise the target lending rate to 7.50 percent from a record low 7.25 percent. A survey by Bloomberg showed that 18 of 58 analysts forecast an increase of 50 basis points. Awazu was one of the 2 votes against raising rates.

Policy makers said “the high level” and “resilience” of inflation required a response, according to the board’s statement posted on the bank’s website.

Currency Rebound

Consumer prices rose at an annual rate of 6.59 percent in March, exceeding the upper limit of the central bank’s preferred range for the first time since November 2011. The target is 4.5 percent, plus or minus 2 percentage points.

The real, the second-best performer among 16 major currencies tracked by Bloomberg today, rebounded from a 0.9 percent drop yesterday as investors speculated $3.2 billion in international bond sales by Brazilian companies this month will bring more dollars into the country.

“The market is working with the expectation of inflows because of these borrowings abroad by Brazilian companies,” Sidnei Nehme, a director at NGO Corretora, said by phone from Sao Paulo.

The real has traded weaker than 2 per dollar every day this week and tumbled 1.6 percent on April 15, contributing to the worst weekly performance since November.

Policy makers have 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.

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