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Tuesday, August 26, 2014

Brazil’s Swap Rates Drop as Consumer Confidence Index Tumbles

Brazil’s swap rates declined as a gauge of consumer confidence dropped to its lowest level since 2009, adding to speculation that the central bank will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2017 decreased two basis points, or 0.02 percentage point, to 11.39 percent at 3:39 p.m. in Sao Paulo, the lowest level on a closing basis since Aug. 19.

The real weakened 0.5 percent to 2.2882 per dollar in the worst performance among 24 emerging-market currencies after the Colombian peso.

The Getulio Vargas Foundation reported today that its seasonally adjusted consumer confidence index fell 4.3 percent to 102.3 in August, the lowest since April 2009.

Economists reduced their outlook for gross domestic product growth this year to 0.70 percent from 0.79 percent, according to the median of about 100 estimates in a central bank survey.

Consumer confidence numbers “show that recovery could be void and GDP-negative in the third quarter,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said in a telephone interview.

Central bank President Alexandre Tombini said Aug. 23 at a conference in Jackson Hole, Wyoming, that consumer price increases in Brazil have remained within the official “tolerance range” for 10 straight years.

“Despite inflation persistence that arises from services prices combined with adverse supply shocks, monetary policy has been able to keep inflation under control,” Tombini said.

Brazil Policy

Policy makers voted unanimously July 16 to hold the target lending rate at 11 percent for a second straight meeting after nine consecutive increases to curb inflation.

The real dropped today against the dollar along with most emerging-market currencies on speculation the U.S. Federal Reserve will raise interest rates in 2015.

To support the real and limit import price increases, Brazil sold foreign-exchange swaps worth $197.2 million as part of an intervention program and rolled over contracts worth $494.7 million.

The sale of swaps has helped push the currency up 3.3 percent this year. Brazil reported today a trade deficit of $214 million in the week ended Aug. 24, compared with a $684 million surplus during the previous week.

bloomberg.com

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