Real and Lira Experience Tumble

The swap rates of Brazil declined from a 4-week high value as an index measuring the construction, wholesale and consumer prices experienced a bigger drop than what was forecasted. This incident spurred speculation that the Central Bank will soon be limiting the increases in the borrowing costs. The swap rates which are due in January, 2015 went down by 5 basis points and these are currently at 8.38%. On yesterday, these swap rates increased by 2 basis points and were at 8.43%, marking the highest level on a closing basis since 17th April. On the other hand, Real declined by 0.2% and it is currently at 2.0269 per USD, marking the weakest level of the same since 25th January.

On today, the Getulio Vargas Foundation reported that the May IGP–10 Index of the construction, consumer and wholesale prices went down by 0.09%. Incidentally, economists were predicting a cut of 0.06%. IGP-10 monitors all the prices from the 11th of the previous month to the 10th day of the current month.

According to the Departmental Head of the Fixed Income at Banco WestLB do Brasil SA, Ures Folchini, the inflation data showed that there is some sort of relief and this helped to bring the swap rates down.

On the other hand, the major currency of Turkey, Turkish Lira went to its lowest intraday level since July, 2012. The bond yields went down to a record low as well; after the Central Bank of Turkey reduced the interest rates more than what was forecasted. Lira, at one point of time on today, went down to 1.8039 per USD. It ended up depreciating by 0.3% and it is now at 1.8274, extending the yearly decline to 2.4%. As far as the yields on the 2-year bonds are concerned, the same experienced a drop of 19 basis points, the same being at a record low of 4.85%.

The benchmark repo rate has been cut by the Turkish Central Bank to 4.5% from its earlier value of 5%. The overnight lending and borrowing costs have been lowered by the bank as well by 50 basis points each to 6.5% and 3.5% respectively. Economists were expecting all 3 to be cut down by a quarter point. Mohammed Kazmi, the Emerging Markets strategy at the Royal Bank of Scotland believes that Central Bank is concerned with capital inflows accelerating.