Brazil’s Swap Rates Climb on Faster 2015 Outlook for Inflation

Brazil’s swap rates rose as economists surveyed by the central bank raised their inflation forecasts for 2015, adding to speculation that policy makers will resume raising borrowing costs next year.

Swap rates on contracts maturing in January 2018 climbed three basis points, or 0.03 percentage point, to 11.43 percent in Sao Paulo. The real advanced 0.3 percent at 2.2224 per U.S. dollar.

Economists increased their inflation forecast for 2015 to 6.21 percent from 6.12 percent a week earlier, according to the median of about 100 estimates in a central bank survey published today. President Dilma Rousseff is facing a combination of slower economic growth and above-target inflation as the October election approaches.

“Inflation will remain high in 2015, independently of who wins the presidential elections this year,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo, said in a phone interview.

While the 6.51 percent increase in consumer prices in the 12 months through mid-July was lower than the median forecast of economists surveyed by Bloomberg, the inflation rate was the highest in a year and exceeded the 6.5 percent upper limit of the official target.

Rousseff said in an interview aired on several media outlets today that inflation isn’t out of control and that it will remain within the central bank’s preferred range.

The economists surveyed by the central bank said gross domestic product will expand 0.90 percent this year, compared with the previous week’s forecast of 0.97 percent. It was the ninth consecutive week that they lowered their growth outlook.

October Election

Speculation that Rousseff is losing popularity as the election approaches amid the slowest economic growth in two decades has helped push the real up 6.3 percent this year, the most among 24 emerging-market currencies.

When pitted against all potential Oct. 5 presidential election candidates, Rousseff would gain 38 percent of votes, down from 39 percent last month, according to a July 18-21 poll from Ibope, which has a margin of error of plus or minus 2 percentage points. Senator Aecio Neves was running second with 22 percent support, compared with 21 percent in June.

To support the real and limit import price increases, Brazil sold $198.7 million of currency swaps today and rolled over contracts worth $346 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

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