Brazilian swap rates rose to the highest level in almost a week as a report showed inflation is picking up, reducing speculation the central bank will sustain the pace of cuts in borrowing costs.
Swap rates on the contract due in January 2014 increased one basis point, or 0.01 percentage point, 7.79 percent today in Sao Paulo, the highest level on a closing basis since July 31. The real fell 0.1 percent to 2.0311 per U.S. dollar.
Inflation as measured by the IGP-DI index accelerated in July to 1.52 percent from 0.69 percent in the prior month, the Getulio Vargas Foundation reported today. The median forecast in a Bloomberg survey was for 1.46 percent inflation.
“The IGP-DI came higher than expected, and food prices are going to suffer more with the drought in the U.S.,” Eduardo Galasini, the head of treasury at Banco Banif in Sao Paulo, said in a telephone interview.
Analysts in a central bank survey reduced their 2012 growth projection. The economy will expand 1.85 percent in 2012, compared with a projection of 1.90 percent growth last week, according to the median forecast of about 100 responses in a central bank survey published today.
The central bank has cut the target lending rate by 4.5 percentage points since August 2011 to a record low 8 percent to help spur growth and shield Brazil’s economy from the European sovereign-debt crisis.
The analysts in the central bank survey lowered their estimate for the 2012 year-end target lending rate for the first time in almost two months. Policy makers will cut the Selic to 7.25 percent, according to the median estimate.
Low employment and real wage increases will help drive Brazil’s economic growth to a 4 percent annual rate by year-end, bank President Alexandre Tombini told reporters in late July.
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