Brazil’s Swap Rates Fall as World Bank Lowers GDP Growth Outlook

Brazil’s swap rates dropped to a seven-month low as the World Bank cut its growth outlook for Latin America’s biggest economy, adding to speculation that policy makers will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2019 fell six basis points, or 0.06 percentage point, to 11.78 percent at the close of trade in Sao Paulo, the lowest level on a closing basis since Oct. 31. The real declined for the first time in six days, dropping 0.4 percent to 2.2337 per U.S. dollar as Brazil’s dimming economic outlook made its financial assets less attractive to international investors.

The World Bank lowered its outlook for Brazil’s expansion in 2014 to 1.5 percent from 2.4 percent, saying developing nations need to move faster to promote broad-based economic development. Slowing growth spurred the central bank to hold its target lending rate at 11 percent on May 28 after nine consecutive increases to curb inflation.

“The World Bank’s reduction of its growth outlook by almost one percentage point is one more sign things are not good here,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview.

Brazil sold $198.8 million of foreign-exchange swaps today under a program to support the currency and limit import price increases and rolled over contracts worth $494.2 million. The central bank announced June 6 that it was extending its intervention, which was initially scheduled to end this month.

Real’s Rally

The real has risen 5.8 percent this year, advancing partly on speculation that President Dilma Rousseff will face a runoff following October’s vote after overseeing a stalled economy and faster inflation. The gain in the currency is the biggest among 24 emerging-market dollar counterparts tracked by Bloomberg.

Rousseff’s lead before the Oct. 5 election narrowed as her main opponent gained support, according to a Vox Populi poll published today.

Her backing stood at 40 percent in a survey of 2,200 people from May 30 to June 1 while that for Senator Aecio Neves of the Social Democracy Party rose to 21 percent from 16 percent in April.

The president would have enough support to avoid a runoff election, according to the survey, which had a margin of error of 2.1 percentage points. A separate survey by polling firm Ibope published yesterday had Rousseff’s lead over Neves at 16 percentage points.

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