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Brazil Swap Rates Rise as Growth Beats Forecast; Real Declines

Brazil’s swap rates climbed as an economic index increased more than forecast after inflation exceeded policy makers’ target range, fueling speculation they will increase borrowing costs as soon as next week.

Swap rates on the contract due in January 2015 rose three basis points, or 0.03 percentage point, to 8.53 percent at 10:08 a.m. in Sao Paulo, extending the increase since April 5 to 13 basis points. It was the first weekly climb since the period ended March 8. The real slid 0.1 percent to 1.9783 per dollar, paring its five-day gain to 0.3 percent.

The central bank reported today that economic activity rose 0.44 percent in February from a year earlier, surpassing the 0.10 percent median forecast of 21 economists surveyed by Bloomberg. The national statistics agency said on April 10 that annual inflation accelerated to 6.59 percent in March, exceeding the 6.50 percent upper limit of the central bank’s target range for the first time since November 2011.

“The better than expected economic activity number could make the central bank more comfortable raising interest rates in April,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA, said in a phone interview.

Minutes of the central bank’s March 5-6 meeting indicated an increase in the benchmark lending rate from a record low 7.25 percent wasn’t imminent as policy makers said “a cautious management of monetary policy” was needed. Board members are next scheduled to set rates on April 16-17.

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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