Brazil Swap Rates Jump on Inflation Report as Real Strengthens

Brazil’s swap rates extended their sixth straight week of increases as a report showed consumer prices rose more than forecast, bolstering speculation that the central bank will raise borrowing costs this year.

Swap rates on the contract due in January 2014 climbed seven basis points, or 0.07 percentage point, to 7.74 percent at 10:04 a.m. in Sao Paulo and have risen 12 basis points since Feb. 15. The real appreciated 0.3 percent to 1.9666 per dollar, leaving it 0.1 percent stronger this week.

Traders increased bets the central bank will lift interest rates from a record low 7.25 percent after the national statistics agency reported consumer prices as measured by the IPCA-15 index rose 0.68 percent in the month through mid- February. The figure surpassed the 0.62 percent median estimate of 38 economists surveyed by Bloomberg. Annual inflation has exceeded policy makers’ 4.5 percent target for more than two years.

“The IPCA figure was not good,” Newton Rosa, the chief economist at SulAmerica Investimentos in Sao Paulo, said by phone from Sao Paulo. “This should feed more bets on an increase in the benchmark rate.”

Central bank president Alexandre Tombini said yesterday in Urbana, Illinois, that the government is now less concerned about the “currency war” than previously.

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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