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Brazil Currency Gains as Central Bank Announces Swap Rollovers

Brazil’s real climbed after the central bank announced plans to roll over all of its foreign-exchange swap contracts due in five weeks to stem the currency’s slide.

The real appreciated 0.3 percent to 2.3720 per dollar after falling 1.6 percent. Swap rates due in January 2017 climbed one basis point, or 0.01 percentage point, to 11.53 percent.

The central bank said in a statement that it will roll over 135,300 currency swaps at auctions Sept. 16-18. The bank has said rollovers are in addition to the $60 billion intervention program announced last week to support the currency after it tumbled to a four-year low. The real dropped earlier today as Syrian turmoil reduced demand for emerging-market assets.

“The currency swaps don’t seem to have any lasting impact,” Eduardo Suarez, Latin America currency strategist at Bank of Nova Scotia, said in a phone interview from Toronto.

The real has fallen 13 percent in the past three months, the biggest drop after the Indian rupee and the Indonesian rupiah among emerging-market dollar counterparts, making imports more expensive.

Longer-term swap rates climbed as all except two of the economists surveyed by Bloomberg forecast that the central bank will sustain the pace of increases in borrowing costs tomorrow.

Annual inflation eased to 6.15 percent in the month through mid-August after surpassing the 6.5 percent upper limit of the central bank’s target range earlier this year.

‘Upper Boundary’

“Inflation is still pretty close to the upper boundary of the target,” Michael Henderson, an emerging-market economist at Capital Economics, said in a telephone interview from London. “The central bank isn’t going to step down from its current pace of rate hikes.”

Brazil has raised its target lending rate in 2013 more than any major economy, increasing it by 1.25 percentage points from a record low 7.25 percent in April.

The real rallied the most in almost two years on Aug. 23, the day after the central bank announced a plan to shore up the real by auctioning $1 billion of dollar loans every Friday and offering $500 million of currency swaps Monday through Thursday for the rest of the year. As part of the program, the central bank sold $498 million of currency swap contracts today.

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