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Brazil Swap Rates Rise After Tombini Comments; Real Advances

Feb. 19 (Bloomberg) -- Brazil swap rates rose as traders interpreted comments from central bank President Alexandre Tombini as leaving the door open for interest-rate increases.

“When necessary, if supported by the prospective scenario for inflation, the posture of the central bank in relation to monetary policy will be adequately adjusted,” Tombini said at an event in Brasilia.

Swap rates due January 2014 rose two basis points, or 0.02 percentage point, to 7.75 percent at the close of trading in Sao Paulo, after falling as much as 10 basis points earlier in the day. The real gained 0.4 percent to 1.9557 per dollar, the strongest since May 10.

Tombini’s comments are a sign that “the central bank may not raise rates in March, but nothing is guaranteed in the meeting after that in April,” Paulo Petrassi, managing partner at Leme Investimentos, said in a phone interview from Sao Paulo.

Swap rates on the January 2014 contract have risen 36 basis points since Finance Minister Guido Mantega said in an interview Feb. 15 in Moscow that the government will do whatever it takes to contain inflation and signaled higher borrowing costs may be an option.

The annual rate of consumer price increases reached a one-year high of 6.15 percent in January and has exceeded the 4.5 percent midpoint of policy makers’ target range for more than two years.

The central bank has reduced the target lending rate by 5.25 percentage points since August 2011 to 7.25 percent in the most aggressive cuts among Group of 20 nations.

Growth Outlook

Gross domestic product will expand 3.08 percent this year and 3.65 percent in 2014, according to the median forecast in a central bank survey of about 100 analysts published yesterday. That compares with last week’s growth projections of 3.09 percent and 3.80 percent. The analysts lowered their forecast for 2013 inflation for the first time since November, reducing it to 5.70 percent from 5.71 percent.

The currency rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank renewed $1.85 billion of foreign-exchange swaps about to expire, refraining from buying dollars to settle the contracts. On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that inflows will help sustain the real.

The real has strengthened 4.9 percent this year, the most among 25 emerging-market currencies tracked by Bloomberg.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@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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