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Brazil Swap Rates Rise on Tombini Inflation Stance; Real Falls

Brazil’s swap rates rose as speculation the central bank will step up the pace of borrowing-cost increases overshadowed a report showing analysts reduced their 2013 growth forecasts.

Swap rates on the contract due in January 2015 climbed four basis points, or 0.04 percentage point, to 8.56 percent in Sao Paulo, the highest closing level since April 17. The real slid 0.2 percent to 2.0388 per U.S. dollar, the weakest since Jan. 22.

Central bank President Alexandre Tombini, who is scheduled to address lawmakers tomorrow in Brasilia, reiterated last week that policy makers will “do what’s needed” to contain inflation. The central bank’s board, which next meets May 28-29, raised the target lending rate last month by a quarter-percentage point to 7.50 percent.

“The market is still reflecting Tombini’s comments,” Daniel Cunha, the chief economist at XP Investimentos in Sao Paulo, said in a telephone interview. “Tombini made investors more comfortable with a bet that he will increase the benchmark rate by 50 basis points.”

Swap rates fell earlier today after the central bank reported that analysts’ median forecast for economic growth in 2013 fell to 2.98 percent from 3 percent. The last time Brazil’s gross domestic product grew slower than 3 percent for three consecutive years was a decade ago.

The real dropped as the central bank refrained from intervening to strengthen it as it reached a four-month low. Policy makers have swung this year between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by reining in gains.

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