Brazil’s Swap Rates Drop as Economists Cut GDP Growth Forecast

Brazil’s longer-term swap rates declined as economists cut growth forecasts for this year to the lowest level on record.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, declined four basis points, or 0.04 percentage point, to 11.59 percent. The real weakened less than 0.1 percent to 2.2584 per dollar.

Gross domestic product will expand 0.86 percent this year, down from the previous week’s median forecast of 0.9 percent, according to a central bank survey of about 100 analysts published today. That’s the lowest level since the central bank started compiling the data last year and the 10th straight week of cuts in growth projections for Latin America’s biggest economy.

“The survey shows one more time a decline in expectations for GDP growth this year,” Octavio de Barros, the chief economist at Banco Bradesco SA in Sao Paulo, wrote in an e-mailed report to clients. “The trading in interest rate futures is reacting to those changes.”

Brazil’s industrial production dropped 1.4 percent in June after contracting a revised 0.8 percent in May, the national statistics agency said on Aug. 1. Of the 24 industries surveyed by the statistics institute, output in 18 fell, including a 12.1 percent decline in cars and auto parts.

Economists in the central bank survey expect inflation of 6.39 percent at the end of this year and 6.24 percent in December, 2015. Those estimates compare to previous forecasts of 6.41 percent and 6.21 percent, respectively. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.

Swap Rollover

Brazil’s central bank today rolled over 8,000 foreign exchange swap contracts due Sept. 1 and worth $395.1 million to bolster the real. That amount probably won’t be sufficient to offset a global trend for outflows from emerging markets, according to Joao Paulo da Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba.

“The central bank is being more conservative and is showing it is comfortable with the currency closer to the 2.30 level,” da Gracia Correa said in a telephone interview.

Brazil’s central bank also sold $198.9 million of swap contracts. In July, the central bank allowed $2.81 billion of contracts maturing Aug. 1 to expire. The sale of swaps has helped push the currency up 4.6 percent this year.