Brazil’s swap rates dropped as the European Central Bank signaled that the region’s economy remains weak, fueling speculation that the Latin American nation’s policy makers will limit increases in borrowing costs.
Swap rates on the contract due in January 2015 fell four basis points, or 0.04 percentage point, to 8.21 percent at 11:57 a.m. in Sao Paulo. The real depreciated 0.5 percent to 2.0112 per U.S. dollar.
“The whole world is in a problematic economic situation,” Paulo Gala, a strategist at Fator Corretora in Sao Paulo, said in a telephone interview. “The central bank may not have much room to raise rates.”
Swap rates declined as ECB President Mario Draghi said today the monetary authority will continue to lend banks as much money as they need at least until mid-2014. Policy makers lowered the target lending rate to a record low 0.5 percent.
Brazil’s central bank board voted 6 to 2 on April 17 to raise its benchmark by 25 basis points to 7.50 percent from a record low 7.25 percent and said in its statement accompanying the decision that “external uncertainties” required “that monetary policy be managed with caution.”
Consumer prices rose at an annual rate of 6.59 percent in March, exceeding the 6.50 percent upper limit of the central bank’s preferred range for the first time since November 2011. The target is 4.50 percent, plus or minus 2 percentage points.
President Dilma Rousseff said in a national television and radio address on May 1 that “Brazil will never abandon fight to control inflation.”
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