Brazilian Swap Rates Fall as Annual Inflation Slows; Real Rises

Brazil’s swap rates dropped after a report showed inflation slowed more than analysts forecast, damping speculation that the central bank will maintain the pace of increases in borrowing costs.

Swap rates on the contracts maturing in January 2017 fell three basis points, or 0.03 percentage point, to 12.25 percent at the close of trading in Sao Paulo, reducing their increase this week to five basis points. The real appreciated 1.1 percent to 2.3320 per dollar, leaving it up 0.2 percent since Nov. 29.

Consumer prices rose 5.77 percent in the 12 months through November after an increase of 5.84 percent in the prior month, the national statistics agency reported today. The lowest forecast of economists surveyed by Bloomberg was 5.78 percent. Policy makers raised the target lending rate on Nov. 27 by a half-percentage point for a fifth straight meeting.

“Inflation decelerated in November, and this marginal slowdown is pushing swap rates downward,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo, said in a phone interview.

The real rose a day after central bank President Alexandre Tombini said the intervention to support the currency and curb import prices will be extended into 2014. Brazil offered foreign-exchange credit lines today as part of the $60 billion program announced in August and called auctions to roll over swap contracts maturing Jan. 2 starting next week.

“The central bank won’t exit the stage,” Tombini said yesterday at an event in Sao Paulo. The program will be extended with “some adjustments.”

The central bank signaled in minutes of its November meeting published yesterday that the pace of increases in borrowing costs is appropriate. Policy makers raised the target lending rate by 2.75 percentage points this year to 10 percent, the most among 49 central banks tracked by Bloomberg.

The board’s statement on Nov. 27 omitted language used previously to signal additional increases of a half-percentage point in borrowing costs are needed to curb inflation.

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