Brazilian Swap Rates Rise From Two-Week Low on Inflation Outlook

Brazil’s swap rates climbed from a two-week low as economists surveyed by the central bank forecast for the first time that inflation will exceed the upper limit of the official target this year.

Swap rates on contracts maturing in January 2016 increased two basis points, or 0.02 percentage point, to 11.96 percent on speculation policy makers will keep raising borrowing costs. The real declined less than 0.1 percent to 2.2377 per U.S. dollar.

Economists increased their 2014 inflation forecast to 6.51 percent from the prior week’s outlook of 6.47 percent, according to the median of about 100 estimates in a central bank survey published today. The official target is 4.5 percent plus or minus 2 percentage points.

“The central bank survey indicates a very negative scenario,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA in Sao Paulo, said in a telephone interview. “There is little expectation inflation will be controlled in the near term.”

The national statistics agency reported last week that consumer prices increased 6.19 percent in the 12 months through mid-April, the fastest pace since mid-July.

Brazil has raised its target lending rate nine consecutive times in the past year to 11 percent, the most increases among 49 central banks tracked by Bloomberg.

Recent data show a food price shock is already easing, central bank President Alexandre Tombini said April 16 in Brasilia. The effects of monetary policy on inflation are cumulative and appear with a delay, Tombini reiterated.

To support the currency and limit import price increases, Brazil sold $198 million of foreign-exchange swaps today under a program announced in December. It also extended the maturity on contracts worth $492.3 million.

Economists in the central bank survey forecast that gross domestic product will expand 1.63 percent this year, down from the median estimate of 1.65 percent a week earlier.

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