Bloomberg News

Brazil Swap Rates Fall to Near Record Low as GDP Estimates Sink

July 16, 2012

Brazil’s swap rates declined after analysts lowered their forecast for economic growth for a 10th straight week.

Swap rates on contracts due in January 2014 fell for a second day, declining one basis point, or 0.01 percentage point, to 7.66 percent. They touched a record low 7.61 percent on July 12. The real gained 0.1 percent to 2.0350 per U.S. dollar

“The central bank survey accentuates bets on further rate cuts in October,” said Darwin Dib, the chief strategist at CM Capital Markets Asset Management, in a telephone interview from Sao Paulo.

Brazil’s gross domestic product will expand 1.9 percent in 2012, according to the median estimate in a central bank survey of about 100 analysts published today. Last week’s survey showed economists expected GDP would grow 2.01 percent.

Policy makers cut the benchmark Selic rate by 50 basis points to a record low 8 percent last week in the latest bid to revive sputtering growth in Latin America’s biggest economy. Since August, the central bank has cut the rate by 4.5 percentage points while the government has pushed banks to lower loan rates. Economists in the survey held their year-end Selic forecast at 7.5 percent.

The central bank is likely to cut the benchmark Selic interest rate by 50 basis points at its Aug. 28-29 meeting to 7.5 percent and another 25 basis points in October, Credit Suisse Group AG analysts including Nilson Teixeira wrote in a research note published July 13.

Consumer Prices

The Getulio Vargas Foundation’s IPC-S consumer prices report, which monitors prices in Brazil’s seven biggest cities, rose 0.22 percent in the 30 days ending July 15. The median estimate of 16 economists surveyed by Bloomberg was for a 0.24 percent increase.

The reduction in growth forecasts combined with the outlook for slowing expansion in China, Brazil’s top trading partner, is spurring speculation of more stimulus measures from Latin America’s biggest country, said Luis Gustavo Pereira, an analyst at Futura Corretora in Sao Paulo.

Chinese Premier Wen Jiabao warned that the momentum for an economic recovery isn’t yet in place. Wen said “difficulties” may persist for a while, according to a report yesterday from the official Xinhua News Agency.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Blake Schmidt in Bogota at bschmidt16@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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