Brazilian Swap Rates Decline as Central Bank Cites Slower Growth

Brazil’s swap rates dropped as the central bank cited slowing growth in minutes of its May meeting, adding to speculation that policy makers will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2017 declined 14 basis points, or 0.14 percentage point, to 11.64 percent at the close of trade in Sao Paulo. The real advanced 0.8 percent to 2.2621 per U.S. dollar.

Policy makers said in minutes published today that domestic consumption is slowing while a year of increases in borrowing costs has yet to have a full impact on above-target inflation. At its May 27-28 meeting, the central bank held the benchmark lending rate at 11 percent and signaled that it probably won’t consider resuming the tightening of policy until after the October election.

“The central bank should not change the rate in the near term,” Carlos Kawall, the chief economist at Banco J. Safra in Sao Paulo, said in a phone interview.

President Dilma Rousseff’s administration is facing the challenge of taming above-target inflation without smothering economic activity.

The economy expanded 0.2 percent in the first quarter, half the pace of the revised figure recorded in the last three months of 2013, the national statistics agency said May 30.

Inflation Report

Consumer prices increased 0.38 percent in May after rising 0.67 percent in the prior month, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s report from the national statistics agency. They project a 6.29 percent annual inflation rate, compared with the 4.5 percent midpoint of the central bank’s target range.

Inflation is slowing and under control, Rousseff told reporters in Brasilia on June 3.

A program of foreign-exchange swaps announced in August to support the real and limit import price increases has helped push the currency up 4.4 percent this year after tumbling 13 percent in 2013. Brazil sold swaps worth $198.7 million today under the program due to expire this month and rolled over contracts worth $495.5 million.

Before it's here, it's on the Bloomberg Terminal.