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Brazil Swap Rates Rise on View Inflation to Quicken; Real Gains

Brazil swap rates rose from a record low as economists projected that consumer prices increased at a faster rate in October, reducing speculation that the central bank will keep borrowing costs low.

The IPCA inflation index climbed 5.44 percent in October from year earlier after a 5.28 percent advance in the prior month, according to the median forecast of 37 analysts surveyed by Bloomberg. The government’s statistics agency will release its report tomorrow.

Swap rates on contracts due in January 2014 increased one basis point, or 0.01 percentage point, to 7.33 percent after closing at a record low 7.32 percent yesterday. The real gained 0.2 percent to 2.0321 per dollar.

“The IPCA expectations can affect the swap rates market,” Darwin Dib, the chief economist at CM Capital Markets Asset Management, said in a phone interview from Sao Paulo.

Brazil’s currency rose along with most of the dollar’s other most-traded counterparts as stocks rallied and U.S. Treasuries dropped.

“The real can appreciate with the improved external environment, but it will be just a little because of the vigilance of the central bank,” Dib said.

To weaken the real and protect exporters, Brazil’s central bank sold $1.4 billion of reverse currency swaps contracts on Oct. 25, $1.6 billion on Oct. 23, $1.3 billion on Oct. 5, $5.7 billion Sept. 12 through Sept. 17 and $350 million on Aug. 21. The August reverse swaps were the first since March.

Inflation Boost

Swap rates climbed on Oct. 19 after a report showed that inflation accelerated more than economists forecast. Prices as measured by the IPCA-15 price index rose 0.65 percent in the month through Oct. 15 after a prior 0.48 percent gain, the national statistics agency reported. That was the fourth straight acceleration.

The central bank has cut the benchmark interest rate by 5.25 percentage points since August 2011 to a record low 7.25 percent to support the economy.

Carlos Hamilton, the central bank’s economic policy director, said in September that annual inflation probably won’t slow to policy makers’ 4.5 percent target until the third quarter of 2013.

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