Brazil's public sector gross debt rises in June on interest costs

BRASILIA, July 31 (Reuters) - Brazil's public sector gross debt rose to 76.6% of gross domestic product in June from 76.1% the month before, central bank data showed on Thursday.

The increase was driven mainly by interest payments, which are still high, even though they fell to 61 billion reais ($10.9 billion) from 94.9 billion reais in June last year.

The decline in payments reflected a 20.9 billion reais gain from the central bank's foreign exchange swap operations, following a 28.6 billion reais loss a year earlier, the central bank said.

The bank profits from forex swaps when the Brazilian real appreciates, and the currency has followed that path this year, helped by capital inflows attracted by Brazil's interest rate differential with the rest of the world.

On Wednesday, the central bank paused its tightening cycle with the benchmark Selic rate at 15%, its highest level in nearly 20 years.

Given that roughly half of Brazil's sizable public debt stock is linked to interest rates, elevated rates translate immediately into higher financing costs for the government.

Nominal interest payments reached 7.45% of GDP in the 12 months through June, the central bank said, while the primary budget balance of Brazil's public sector was a surplus of 0.15% of GDP over the same period.

In June alone, the public sector recorded a primary deficit of 47.1 billion reais ($8.4 billion), while economists polled by Reuters were expecting a narrower 40.9 billion reais shortfall.

($1 = 5.5765 reais)