Brazilian Swap Rates Fall as China Export Jump Fuels Real Gain

Brazil’s swap rates fell on most contracts today as investors speculated that a rebound in the currency will help curb inflation and allow policy makers to limit borrowing-cost increases.

Rates on the swaps contract due in January 2017 fell one basis point, or 0.01 percentage point, to 11.52 percent in Sao Paulo. The real advanced 1.3 percent to 2.2761 per dollar, the strongest since Aug. 9, after gaining 3.4 percent last week, the most since January 2012.

The currency strengthened after data showed exports from China, the country’s biggest trading partner, rose more than economists forecast. Brazil’s central bank has lifted benchmark borrowing costs 1.75 percentage points this year to 9 percent.

“More growth abroad favors commodity prices and gives Brazil some breathing room,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimentos, said by phone from Sao Paulo. The real at 2.30 per dollar “gives an impression that the rate hikes will be less intense,” he said.

The central bank sold 10,000 foreign-exchange swap contracts worth $497.6 million today, part of a $60 billion intervention program to support the real announced last month. It will auction another 10,000 swap contracts tomorrow.

The real has lost 6.3 percent in the past three months, the most among 16 major currencies tracked by Bloomberg.

Policy makers on Aug. 28 raised the benchmark Selic by a half-percentage point to 9 percent, the fourth straight increase and the fastest pace of monetary tightening of any major world economy tracked by Bloomberg.

Brazil Inflation

Annual inflation as measured by the IPCA index decelerated in August to 6.09 percent, the slowest since December, the national statistics agency said Sept. 6. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus 2 percentage points.

The central bank considers the current pace of key rate increases to be appropriate, as a weaker real pressures short-term inflation, policy makers said in the minutes to their Aug. 27-28 meeting.

The real also rallied against the dollar with most major currencies today amid speculation that lower-than-forecast job growth in the U.S. may prompt the Federal Reserve to be less aggressive when reducing monetary stimulus.

“The payroll data last week showed the American economy still needs to improve,” Reginaldo Siaca, the head of currency trading at Advanced Corretora de Cambio, said by phone from Sao Paulo. “We’ve also had big inflows, on top of the actions of the central bank.”

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