Brazilian Swap Rates Went Ahead

Swap rates of Brazil increased, thereby erasing an earlier drop, after the Director for Economic Policy of the Central Bank, Carlos Hamilton, stated that the monetary authority may need to step up the pace of increases in the borrowing costs for being able to curb the inflation.

Carlos Hamilton made his comments at an event in Sao Paolo and some fellow board members endorsed his comments as well. These discussions were not made public though as a person familiar with the matter reported these comments. Incidentally, in minutes of the 16th April – 17th April meeting, the Central Bank stated that the weak global growth will be curbing the inflation, spurring speculation that increases in the borrowing costs will be sort of unlimited.

According to the Senior Economist of 4cast Ltd., Pedro Tuesta, Hamilton seemed more hawkish than the minutes looked like. The swap rates which are due in January, 2014 jumped up by 10 basis points and are currently at 7.93%, marking its biggest increase since 12th April. Earlier, these went down by around 3 basis points. Incidentally, the major currency of Brazil, Real increased by 0.4% and is currently priced at 2.0013 per USD.

The Selic target lending rate was increased to 7.50% by Copom, which is the monetary policy committee of this Latin American country. According to the statement released after rate increase, the high level of inflation and resilience of the same required a sort of response.

After the Central Bank increased the borrowing costs less than what was predicted by the analysts, swap rates of Brazil tumbled on that day. As Hamilton stated, he believes that the Copom may be prompted to reflect on the chances of intensifying the usage of the monetary policy tool known as the Selic rate.

The statement made by the Central Bank on last week was tempered by the recognition that some external uncertainties required that the monetary policy is managed with proper caution. In March, the consumer prices in Brazil increased at an annual rate of 6.59%, which exceeded the upper limit of the preferred range of the Central Bank. This happened for the first time since November, 2011. The current target is 4.5%, plus or minus 2 percentage points.

Yesterday, the Brazilian Central Bank reported that the foreign currency net outflows in 2013 have narrowed down to $983 million as of 19th April.