Brazil’s Swap Rates Decline on Tombini View Inflation Will Slow

Brazil’s swap rates fell a day after central bank president Alexandre Tombini said inflation will slow toward the official target if borrowing costs stay at current levels.

Swap rates on contracts maturing in January 2017 dropped 0.15 percentage point to 11.71 percent at the close of trade in Sao Paulo. The real rose 0.4 percent to 2.2730 per dollar.

Inflation is under control and will end the year within the target range of 2.5 percent to 6.5 percent as the economy slows and the effects of recent monetary tightening take hold, Tombini said yesterday at a Senate hearing. Policy makers voted unanimously July 16 to hold the target lending rate at 11 percent for a second straight meeting after nine consecutive increases to curb inflation.

“Tombini basically reinforced the central bank’s perspective for the benchmark rate in the short term, which should not change again this year,” Juliano Ferreira, a strategy analyst at Icap do Brasil CTVM in Sao Paulo, said in a telephone interview.

Consumer prices increased 6.6 percent in July after climbing 6.52 percent in the prior month, according to the median forecast of economists surveyed by Bloomberg before the government’s Aug. 8 report.

Vehicle output in Brazil last month dropped 20.5 percent in comparison to the previous year, to a total of 252,635 units, according to a report released today by the national vehicle manufacturers association, known as Anfavea.

To support the real and limit import price increases, Brazil sold $198.6 million of currency swaps today and rolled over contracts worth $395.8 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year. The sale of swaps has helped push the currency up 3.9 percent this year.

Brazil posted a net outflow of $1.79 billion in July, according to data released today by the Central Bank. That is the biggest net outflow for a month since February.

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