Brazil Swap Rates Rise on Tombini Inflation Comment; Real Gains

Brazilian swap rates rose for a second day after comments by central bank President Alexandre Tombini fueled speculation policy makers may step up the pace of borrowing-cost increases.

Swap rates on the contract due in January 2015 rose four basis points, or 0.04 percentage point, to 9.39 percent at 10:11 a.m. in Sao Paulo. The real gained 0.2 percent to 2.2437 per dollar after advancing 0.9 percent last week.

The fight against inflation is important for rebuilding confidence in Brazil’s economy, which is necessary to maintain the gradual recovery, Tombini said, according to the Sao Paulo-based newspaper. His comments encouraged speculation that policy makers may step up the pace of interest rate increases, according to Luciano Rostagno, chief strategist at Banco WestLB do Brasil.

“Tombini expressed the desire to have lower inflation,” Rostagno said by phone from Sao Paulo. “To achieve this objective, the benchmark rate will have to rise more than the market has been projecting.”

Brazil’s central bank will lift borrowing costs to 9.25 percent by year end, according to the median estimate of about 100 economists in a central bank survey published today.

Policy makers on July 10 raised the target lending rate by a half-percentage point to 8.50 percent, the third increase this year. The central bank said in minutes of last week’s policy meeting that it is appropriate to maintain the pace of increases in borrowing costs to curb inflation.

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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