Brazil Swap Rates Rise After Central Bank Minutes as Real Drops

Brazil’s swap rates climbed after the central bank signaled in minutes of its last meeting that it would keep raising borrowing costs to curb inflation.

Swap rates on contracts due in January 2017 rose nine basis points, or 0.09 percentage point, to 12.37 percent. The real depreciated 0.2 percent to 2.3239 per U.S. dollar after climbing 0.7 percent earlier today.

“The minutes show there will be a change of 0.25 percentage point in the next meeting,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said in a phone interview. “It showed that there still are concerns regarding inflation.”

The central bank said in minutes published today that it considers “the continuation of the adjustment of monetary conditions under way” to be appropriate. Policy makers lifted the target rate by 25 basis points last month after six straight increases of a half-percentage point.

The real erased gains after a report showed the trade deficit widened to $6.2 billion in the first two months of the year from $5.3 billion a year earlier.

“The release of the trade deficit numbers scared the market,” Jefferson Luiz Rugik, a director at Correparti Corretora de Cambio in Curitiba, Brazil, said by phone.

Brazil posted foreign-exchange outflows of $1.86 billion in February, according to a report published today by the central bank. The year-to-date outflow is $246 million.

To support the real and limit import price increases, Brazil sold $198 million of foreign-exchange swaps today under a program announced in December.

‘Less Severe’

Brazil will cut 44 billion reais from this year’s budget, the Finance Ministry said Feb. 20. The reduction will slow inflation and cut debt while allowing monetary policy to be “less severe,” Finance Minister Guido Mantega told reporters in Brasilia the same day.

Consumer prices climbed 5.65 percent in the year through mid-February, above the bank’s 4.5 percent target. Policy makers have raised borrowing costs by 350 basis points since April to 10.75 percent.

Economists covering Brazil raised their forecast for 2014 gross domestic product growth to 1.70 percent from 1.67 percent a week ago, according to the median of about 100 estimates in a central bank survey published yesterday.

A Feb. 27 government report showed GDP expanded 0.7 percent in the fourth quarter from the prior three months, when it contracted 0.5 percent. The increase was more than all of the forecasts of analysts surveyed by Bloomberg.

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