Brazil’s swap rates headed for a seventh monthly drop on concern President Dilma Rousseff’s stimulus measures have yet to spur economic growth, overshadowing signs of a pick-up in inflation.
The yield on interest-rate futures due in July 2014 fell three basis points, or 0.03 percentage point, to 7.82 percent at 11:15 a.m. in Sao Paulo, extending its monthly decrease to seven basis points.
“The government is increasing its spending, trying to do more public investment, but there is still not much to show,” Alessandro Del Drago, an economist at Kinea Investimentos in Sao Paulo, said in a telephone interview.
The real was poised for a monthly drop on speculation the central bank will end a policy of swap auctions that supported the currency.
Latin America’s biggest economy will expand 1.9 percent this year, compared with 2.7 percent in 2011, according to the median estimate of about 100 analysts in a central bank survey published yesterday. They cut their forecast for 2013 growth to 4.05 percent from 4.10 percent in the previous week.
Brazil plans another round of measures to spur growth including lower electricity costs, an investment policy for roads, ports and airports and more tax cuts, Rousseff told reporters in London on July 27.
The central bank has cut the target lending rate by 4.5 percentage points since August to a record low 8 percent to boost growth, which has faltered in the face of the European sovereign-debt crisis and China’s slowdown. The government has reduced taxes on consumer goods including automobiles to support demand.
Prices as measured by the IGP-M index rose 1.34 percent in July, the Getulio Vargas Foundation reported yesterday. That was more than estimated by all except one of 36 economists surveyed by Bloomberg. Brazil’s broadest inflation gauge has a 60 percent weighting for wholesale prices, 30 percent for consumer prices and 10 percent for construction costs.
The real depreciated 0.6 percent to 2.0528 per U.S. dollar, extending its monthly drop to 2.1 percent, the worst performance among major Latin American counterparts tracked by Bloomberg.
The central bank doesn’t plan to roll over $4.5 billion in currency swaps that mature at the beginning of August, a government official said last week.
The level of stress in financial markets has eased in recent days, allowing the government to settle swap positions, said the official, who asked not to be identified because the matter hasn’t been made public.
“The market is pricing in that the bank isn’t rolling over swaps for a second day,” Italo Abucater, the head of currency trading at ICAP Brasil CTVM, said in a phone interview from Sao Paulo.
The central bank auctioned $16.8 billion in swaps on 11 days from May 18 through June 29 to support the currency, according to data compiled by Bloomberg. The sales were a reversal of the bank’s dollar purchases, which increased to $7.2 billion in April, the most in 13 months, to weaken the real and support the country’s exporters. The bank abandoned those purchases in May.
The government had a 1.3 billion reais ($636 million) budget surplus in June, the Treasury said in a report released in Brasilia today. The median forecast of 12 economists surveyed by Bloomberg was for a surplus of 4 billion reais.
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