Brazil’s Swap Rates Drop on Concern Economy Slowing; Real Falls

Most of Brazil’s swap rates fell for a fourth straight week on speculation a faltering economy will prompt policy makers to limit increases in borrowing costs.

Swap rates on the contract maturing in January 2016 declined 43 basis points, or 0.43 percentage point, since July 12 to 10.04 percent in Sao Paulo. They fell two basis points today. The real depreciated 0.9 percent to 2.2471 per U.S. dollar.

“There’s a growing fear that activity will be very weak in the third quarter, and there are poor expectations for the year,” Mauro Schneider, an economist at CGD Securities, said in a telephone interview from Sao Paulo.

Analysts covering Brazil have reduced their 2013 growth forecast for nine straight weeks, cutting it to 2.31 percent in a central bank survey of about 100 economists published July 15. Annual inflation slowed to 6.40 percent in the month through mid-July, within the central bank’s 2.5 percent to 6.5 percent target range, from 6.67 percent, the government reported today.

Policy makers raised the target lending rate by a half-percentage point to 8.50 percent on July 10 in the third increase this year. The central bank said in minutes of last week’s policy meeting that it is appropriate to maintain the pace of increases in borrowing costs to curb inflation.

Consumer prices as measured by the IPCA index climbed 0.07 percent in the month through mid-July after rising 0.38 percent in the previous 30 days, the government reported. The median forecast of economists surveyed by Bloomberg was for a 0.11 percent rise.

Weekly Gain

The real rose 0.9 percent on the week, the first such increase in three weeks as the central bank intervened by selling foreign-exchange swaps to stem the currency’s decline and Federal Reserve Chairman Ben S. Bernanke quelled concern that a reduction of U.S. monetary stimulus was imminent. Brazil’s central bank sold foreign-exchange swap contracts worth $995 million today.

A stronger real “could bring some relief for inflation, together with monetary tightening,” Roberto Padovani, the chief economist at Votorantim Ctvm in Sao Paulo, said by phone.

The currency has fallen 11 percent in the past three months, the worst performance among major emerging-market dollar counterparts, as accelerating inflation helped spur street protests and hampered efforts to stimulate Latin America’s largest economy.

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