Brazilian Swap Rates Decline

The swap rates of Brazil experienced a decline as the analysts lowered their forecast for the output growth for the industries, thereby spurring speculation that the lackluster economy of this Latin American country will limit increases in the borrowing costs. The swap rates on the contracts which are due in January, 2015, went down by 3 basis points and these are currently at 8.24%. The major currency of Brazil, Real, on the other hand, experienced a tumble of 0.2% and it is currently priced at 2.0133 per USD, marking the weakest value on closing basis since 23rd April.

Analysts in a Central Bank survey predicted that that the growth in industrial output by end of this year may be of 2.39%. This marks the 3rd straight week when the industrial output predictions experienced a decline as the earlier prediction was of 2.83%.
According to the Senior Economist of Banco Espirito Santo de Investimento SA, Flavio Serrano, the growth that was being expected for the industrial production will probably not come. Serrano added that if the point of view of fundamentals for the Brazilian currency is taken into consideration, the environment does not look like to be positive anymore. Serrano commented further that the current account deficit for Brazil has increased, whereas, the direct investments are falling down as well.

According to the report published by the National Statistics Agency on last week, the industrial production of Brazil expanded by 0.7% in March, thereby missing the estimate set by the analysts at 1.3%. If output is considered, the same has contracted by 3.3% from its value of a year earlier, marking the biggest decline since December, 2012.

The Central Bank of Brazil voted on favor of increasing the target lending rate by 25 basis points to 7.50%, from its earlier record low value of 7.25%. In accompanying statement, the bank stated that the decision was driven by external uncertainties and monetary policy of the country should be managed with care.

Many are speculating that the widening trade deficit will dim the prospects for inflows into Brazil and this is accelerating the decline of Real. On 2nd May, the Government reported that the trade deficit is at $994 million in April and this is higher than the initially predicted figure of $950 million. Off late, Central Bank has sold currency swaps for preventing Real to fall quickly.