Brazil Swap Rates Drop After Inflation Report; Currency Declines

Brazil’s shorter-term swap rates fell after a report showed inflation slowed in June more than analysts forecast, damping speculation that the central bank will increase borrowing costs at a faster pace.

Swap rates due January 2015 fell three basis points, or 0.03 percentage point, to 9.72 percent at 10:09 a.m. in Sao Paulo. The real depreciated 0.7 percent to 2.2644 per U.S. dollar, extending its decline this week to 1.5 percent.

Consumer prices rose 0.26 percent in June after a 0.37 percent increase in the prior month. The rate was lower than the 0.33 percent median forecast of economists surveyed by Bloomberg. While annual inflation of 6.70 percent exceeded the 6.50 percent upper level of the central bank’s target range, it was slower than the 6.77 percent median forecast.

“Even though it went through the ceiling of the central bank’s target, it confirms the scenario that rates will be hiked by 50 basis points,” Andre Perfeito, the chief economist at Gradual, said in a phone interview.

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