Brazil’s swap rates dropped for the first time in four days after a report showed industrial confidence declined in June, prompting speculation that lackluster economic growth will help tame inflation.
Swap rates on the contract due in January 2015 fell 19 basis points, or 0.19 percentage point, to 10 percent at 9:55 a.m. in Sao Paulo. The real appreciated 0.4 percent to 2.1726 per U.S. dollar after touching a four-year intraday low of 2.1856 yesterday, prompting the central bank to intervene to stem its decline.
Traders pared wagers on a sustained pace of increases in borrowing costs after a preview from the Getulio Vargas Foundation showed that its industrial confidence index fell to 103.7 in June from 105 in the prior month. Central bank president Alexandre Tombini said in Senate hearings yesterday that policy makers are working to reduce the inflationary pressure that may stem from a drop in the real.
“The domestic data are more benign today for rates, with the drop in industrial confidence, and Tombini’s comments yesterday weren’t very hawkish,” Daniel Cunha, the chief economist at XP Investimentos, said in a telephone interview.
The central bank raised its target lending rate by 50 basis points on May 29 to 8 percent to curb inflation, surprising 38 of 57 economists surveyed by Bloomberg, who had expected a second straight increase of 25 basis points. The benchmark was held at a record low 7.25 percent from October to March to support growth.
Brazil is prepared to face the “adverse winds” of a stronger dollar and has the capacity to make the currency market function adequately, Tombini told the Senate’s Economic Affairs Committee in Brasilia yestereday.
The real rose today along with most of the other major dollar counterparts on speculation that the Federal Reserve will sustain at the end of its two-day policy meeting a stimulus program that has buoyed emerging-market assets.
The central bank sold $4.5 billion in foreign-exchange swap contracts in two auctions yesterday, the sixth day of intervention in three weeks.
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