Brazil Swap Rates Climb After Hamilton Comment; Real Advances

Brazil’s swap rates rose, erasing a drop, as the central bank’s director for economic policy said the monetary authority may have to step up the pace of increases in borrowing costs to curb inflation.

Some fellow board members endorsed the comments by Carlos Hamilton made at an event in Sao Paulo, said a person familiar with policy matters who asked not to be identified because discussions aren’t public. Swap rates fell earlier as the central bank said in minutes of its April 16-17 meeting published today that weak global growth will help curb inflation, spurring speculation that increases in borrowing costs would be limited.

“Hamilton was more hawkish than the minutes were,” Pedro Tuesta, a senior economist for Latin America at 4cast Ltd., said in a telephone interview.

Swap rates due in January 2014 climbed 10 basis points, or 0.10 percentage point, to 7.93 percent in Sao Paulo, the biggest increase since April 12. They earlier fell as much as three basis points. The real appreciated 0.4 percent to 2.0013 per dollar.

The monetary policy committee, known as the Copom, voted 6 to 2 last week to increase the Selic target lending rate to 7.50 percent from a record low 7.25 percent, saying in its statement that “the high level of inflation” and “resilience of inflation” required a response.

Brazil’s swap rates tumbled the day after the meeting as the central bank raised borrowing costs less than some analysts had forecast. A survey by Bloomberg showed that 18 of 58 analysts had projected an increase of 50 basis points.

“I have a growing conviction that the Copom may be prompted to reflect on the possibility of intensifying the use of its monetary policy tool, the Selic rate,” Hamilton said today in Sao Paulo.

‘External Uncertainties’

The central bank’s statement last week was tempered by recognition that “external uncertainties” required that monetary policy be managed with caution.

“There was a growing consensus in the market that the central bank had planned on raising rates in steps of 25 basis points,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA, said in a telephone interview. “As far as Carlos Hamilton is concerned, it hasn’t been decided.”

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.

Unemployment Rate

Brazil’s unemployment rate rose to 5.7 percent in March from 5.6 percent in the prior month, the national statistics agency reported today. The median forecast of 33 economists surveyed by Bloomberg was for an increase to 5.9 percent.

The real was headed for a second straight week of trading weaker than 2 per dollar as policy makers swung this year between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by reining in gains.

Brazil’s central bank reported yesterday that foreign currency net outflows this year to date narrowed to $983 million as of April 19 from $5.1 billion a week earlier.

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