Brazil Swap Rates Fall to 11-Week Low Before Minutes; Real Rises

Brazil’s swap rates dropped to an 11-week low on speculation central bank minutes due tomorrow will show policy makers will limit borrowing cost increases.

Swap rates due in July 2017 fell one basis point, or 0.01 percentage point, to 8.94 percent at 10:22 a.m. in Sao Paulo, the lowest level on a closing basis since Feb. 1. The real gained less than 0.1 percent to 2.0223 per dollar.

“It seems clear that there’s a disinflationary bias in the global environment,” Octavio de Barros, the chief economist at Bradesco Bradesco SA, said in an e-mailed response to questions. “I see the minutes leaving the door open for a total adjustment possibly smaller than the 100 basis points we priced in.”

Swap rates tumbled on April 18, the day after the central bank raised borrowing costs less than some analysts had forecast. Board members voted 6 to 2 to increase the target lending rate by 25 basis points to 7.50 percent from a record low 7.25 percent. A survey by Bloomberg showed that 18 of 58 analysts had forecast an increase of 50 basis points.

Policy makers said in their statement that “the high level of inflation” and “resilience of inflation” required a response tempered by the central bank’s recognition that “external uncertainties” also required “that monetary policy be managed with caution.”

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