Bloomberg News

Brazil Swap Rates Drop as GDP Projection Falls; Real Declines

August 27, 2012

Brazil’s swap rates fell the most in two weeks after economists lowered their forecast for this year’s growth, spurring speculation policy makers will sustain the pace of cuts in borrowing costs.

Swap rates on contracts due in January 2014 dropped seven basis points, or 0.07 percentage point, to 7.89 percent, the most since Aug. 13 on a closing basis.

“The central bank will have to do its part to revive the economy,” Andre Perfeito, the chief economist at Gradual Investimentos, said in a phone interview from Sao Paulo.

The real slid 0.3 percent to 2.0336 per dollar after posting on Aug. 24 its first five-day decline in three weeks. The central bank auctioned reverse currency swaps on Aug. 21 for the first time since March as the real strengthened toward 2 per dollar.

Economists covering Brazil lowered their 2012 growth forecast for a fourth straight week as the largest emerging market after China struggled to recover from slow growth in the first half.

Brazil’s gross domestic product will expand 1.73 percent this year, according to the median estimate in a central bank survey of about 100 economists published today, compared with a projection in the previous week of 1.75 percent growth. The economists held their 2013 expansion forecast at 4 percent.

Policy makers have cut the target lending rate by 4.5 percentage points since August 2011 to a record low 8 percent. The government has pressured commercial banks to increase lending and cut taxes to revive growth.

Central Bank Meeting

Traders are betting on an additional reduction of a half- percentage point in the Selic at this week’s policy meeting, swap rates indicate.

Brazil’s economy grew at an annualized 0.8 percent pace in the first quarter, less than half the rate of the U.S. Results from the second quarter will be published Aug. 31.

The economy may expand 1.5 percent to 2 percent this year, Brasil Economico reported, citing unidentified officials from the Finance Ministry. An official at the ministry declined a request for comment from Bloomberg News.

The economy will grow at a 4 percent annual rate by year- end and enter 2013 at “cruising speed,” Finance Minister Guido Mantega told reporters Aug 16.

Analysts in the central bank survey revised their inflation forecast for 2012 to 5.19 percent from 5.15 percent the previous week.

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

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


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