Brazil Swap Rates Decline on Concern for Dimmer Growth

Brazil’s swap rates fell for a third day out of four as dimming growth prospects for Latin America’s largest economy tempered inflation concerns.

Swap rates on the contract due in January 2017 fell seven basis points, or 0.07 percentage point, to 10.8 percent at 9:43 a.m. in Sao Paulo. The real rose 0.2 percent to 2.2648 per dollar.

Traders are trimming bets on the duration of the monetary tightening cycle after industrial production contracted more than analysts forecast in May. Credit Suisse Group AG cut its 2013 growth forecast today to 2 percent from 3 percent.

“The market is imagining that in 2014 and even 2015 growth in Brazil will continue to be very low,” Paulo Nepomuceno, a fixed-income strategist at Coinvalores Corretora, said by phone from Sao Paulo. “Consequently, the central bank wouldn’t need two more rate increases like the market has been pricing in.”

Policy makers have increased the benchmark rate twice this year from a record low 7.25 percent, lifting it by 25 basis points in April and an additional 50 basis points to 8 percent in May. The central bank’s monetary policy committee next meets July 9-10.

(Corrects first paragraph to show that swap rates fell for a third day out of four.)
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