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Brazil Holds Near 8-Week High as Bank Seen Allowing Further Gain

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Jan. 3 (Bloomberg) -- Brazil’s real held within 0.1 percent of an eight-week high on bets the central bank will allow it to rally further to help contain inflation.

The currency was little changed at 2.0457 per dollar at the close in Sao Paulo. The real rallied on Dec. 27 to 2.0434, the strongest level since Nov. 8. The currency appreciated earlier today to 2.0334.

“The market is returning to its cannons to try to break the 2.03 per dollar level,” Reginaldo Galhardo, a currency trader at Treviso Corretora in Sao Paulo, said by telephone.

The real has strengthened 1.1 percent since Dec. 20, when Carlos Hamilton, the central bank’s director for economic policy, said officials consider 2.05 per dollar as more “adequate” when creating economic forecasts than 2.10.

Brazil’s annual rate of consumer price increases as measured by the benchmark IPCA index has exceeded the 4.5 percent midpoint of the central bank’s target range for 27 consecutive months. Inflation unexpectedly accelerated to 5.53 percent in November from 5.45 percent the month before, the statistics agency reported Dec. 7.

The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening beyond 2 per dollar.

Some of Brazil’s swap rates fell on speculation that policy makers will keep borrowing costs at record lows to support the economy a day before a report forecast to show a drop in industrial production.

Industrial Production

Output in Latin America’s largest economy shrank 0.9 percent in November after a 0.9 percent increase in the prior month, according to the median forecast of 34 economists surveyed by Bloomberg before tommorow’s report from the national statistics agency.

Swap rates on the contract due in January 2015 dropped three basis points, or 0.03 percentage point, to 7.70 percent.

Brazil’s economy grew 0.98 percent in 2012, according to the latest central bank survey of about 100 economists at financial institutions, after a 2.7 percent expansion in 2011 and 7.5 percent growth in 2010.

Policy makers left the target lending rate at a record low 7.25 percent in November after 10 consecutive reductions since August 2011.

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net; Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net

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

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