Tags: Brazil | Swap | Rates | real

Brazil’s Swap Rates Drop as Economic Activity Slows; Real Falls

Wednesday, 20 Feb 2013 12:07 PM

Brazil’s swap rates dropped from a five-month high after the central bank’s economic activity index rose less than forecast, boosting speculation policy makers will delay raising borrowing costs.

Swap rates due in January 2014 declined five basis points, or 0.05 percentage point, to 7.70 percent at 12:36 p.m. in Sao Paulo after rising yesterday to 7.75 percent, the highest level on a closing basis since Sept. 24. The real depreciated 0.1 percent to 1.9583 per dollar.

“Any action by the central bank on rates could be more delayed than the swap curve is currently pricing,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA in Sao Paulo, said in a phone interview.

To support Latin America’s biggest economy, the central bank has reduced the target lending rate by 5.25 percentage points since August 2011 to a record low 7.25 percent. Policy makers are also contending with accelerating inflation, which has exceeded the 4.5 percent midpoint of their target range for more than two years.

Brazil’s economic activity increased 0.26 percent in December from a month earlier, compared with growth of 0.57 percent in November, the central bank reported. The median forecast of 15 analysts surveyed by Bloomberg was for a 0.30 percent expansion.

Swap rates rose yesterday as traders interpreted comments from central bank President Alexandre Tombini as allowing for interest-rate increases.

“When necessary, if supported by the prospective scenario for inflation, the posture of the central bank in relation to monetary policy will be adequately adjusted,” Tombini said at an event in Brasilia.

GDP Outlook

Gross domestic product will expand 3.08 percent this year and 3.65 percent in 2014, according to the median forecast in a central bank survey of about 100 analysts published Feb. 18. That compares with last week’s growth projections of 3.09 percent and 3.80 percent. The analysts lowered their forecast for 2013 inflation for the first time since November, reducing it to 5.70 percent from 5.71 percent.

The movement of the real today was limited by speculation that the central bank will try to keep the currency at about its current level, according to Ronaldo Patah, the head of fixed income at Itau Asset Management in Sao Paulo.

“If the real could stay around 1.95 per dollar, without much volatility, it would be ideal for the central bank,” he said in a phone interview. “If it strengthens beyond that, it could harm industry, and if it weakens beyond 2 per dollar, it could worsen inflation.”

Real’s Rally

The currency rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank renewed $1.85 billion of foreign-exchange swaps about to expire, refraining from buying dollars to settle the contracts. On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that inflows will help sustain the real.

The real has strengthened 5 percent this year, the most among 25 emerging-market currencies tracked by Bloomberg. It has risen 1.8 percent in February.


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Brazil s swap rates dropped from a five-month high after the central bank s economic activity index rose less than forecast, boosting speculation policy makers will delay raising borrowing costs.Swap rates due in January 2014 declined five basis points, or 0.05 percentage...
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2013-07-20
Wednesday, 20 Feb 2013 12:07 PM
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