Brazil swap rates fall on surge in unemployment; real declines

Gabrielle Coppola & Josue Leonel – Bloomberg, 02/26/2013

Brazil’s swap rates dropped as the unemployment rate rose in January more than forecast, bolstering speculation policy makers will refrain from increasing borrowing costs amid tepid economic growth.

Finance Minister Guido Mantega said in New York that February inflation has been more “benign” and that the government has no plans to change the transactions tax known as IOF. The central bank will decide next week whether to hold the target rate at a record low 7.25 percent for a third meeting to support the economy even as inflation has exceeded the 4.5 percent midpoint of its target range for more than two years.

Swap rates on the contract due in January 2015 decreased five basis points, or 0.05 percentage point, to 8.42 percent at 1:43 p.m. in Sao Paulo. The real slid 0.4 percent to 1.9897 per U.S. dollar, paring its advance in February to 0.1 percent.

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Brazil relaxes capital controls; currency to strengthen

Kenneth Rapoza – Forbes, 06/14/2012

Brazil’s currency, the real, has been parked over R$2 to the dollar for months now thanks to a combination of weak commodity prices and fiscal measures designed to weaken the exchange rate. But with retail sales a disappointingly low 0.8% compared to consensus estimates of around 1.4%, and the government now falling in line with the market and saying this year’s GDP growth will come nowhere the 4% target, the Finance Ministry decided to make a move on foreign credit transactions late Wednesday to help ease the burden of tough times.

They edited a rule that reduced the average maturity of overseas borrowing by Brazilian companies exempt of the 6% financial transactions tax, or IOF, to two years. In March, Brazil extended the maturity threshold twice (in less than one week), first to three (from two) then to five years. By reducing the threshold, the government acknowledges that capital markets are tighter and taxing credit below the five year loan maturity threshold imposes an unnecessary cost for large Brazilian companies that need to access foreign capital markets.

This is the first step in relaxing capital controls this year. The last time the government acted in this direction was on December 1, 2011 when it lowered the IOF tax on foreign equity flows to 0% from 2%.

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