Brazilian Swap Rates Climb as April Inflation Seen Accelerating

Brazil’s swap rates rose before a report forecast to show inflation accelerated in April, adding to speculation that policy makers will raise borrowing costs after the October presidential election.

Swap rates on contracts maturing in January 2017 increased eight basis points, or 0.08 percentage point, to 12.20 percent at the close of trading in Sao Paulo. The real advanced for a third straight day, gaining 0.1 percent to 2.2150 per U.S. dollar, the highest level on a closing basis since April 24.

Consumer prices climbed 6.41 percent in April, approaching the 6.5 percent upper level of the central bank’s target range, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s report. Policy makers will continue with the work begun last year to curb inflation, Luiz Pereira, the central bank’s director for international affairs, said at an event in Sao Paulo.

“Pereira’s comments showed a more hawkish inclination, which would suggest a continuity in rate hikes,” Daniel Cunha, a strategist at XP Investimentos in Sao Paulo, said by e-mail.

Trading of swap-rate contracts indicates that the central bank will lift borrowing costs by a quarter-percentage point at its first meeting after the Oct. 5 presidential election. Brazil raised the target rate in the past year from a record low 7.25 percent to a two-year high of 11 percent.

Brazilian policy makers will continue with the inflation fight they started in April 2013, central bank Director Luiz Awazu Pereira said today, referring to when the country began the world’s longest tightening cycle.

‘Food Shocks’

“From the point of view of the central bank’s work, we are continuing to work to bring inflation to target,” Awazu, who oversees international affairs, said at an event in Sao Paulo. “We had food shocks. We had supply shocks. But we will continue this work of ours that we have started since April 2013.”

Carlos Hamilton, the central bank’s director for economic policy, said today at an event in Recife, Brazil, that inflation is slightly more resilient than expected.

The currency rose today as an unexpected gain in imports and exports in China eased concern that the economy of Brazil’s biggest trading partner is slowing.

To support the currency and limit import price increases, Brazil sold today $198.5 million of foreign-exchange swaps under a program announced in December. It also extended the maturity on contracts worth $247.6 million.