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Brazil Real Drops as Central Bank Considers Swap Rollover Demand

Brazil’s real fell as the central bank indicated it may pare back support that sparked the world’s biggest currency rally over the past two months.

The real depreciated 0.2 percent to 2.1751 per U.S. dollar in Sao Paulo after policy makers said they are studying whether demand is sufficient to hold auctions beginning tomorrow to roll over $8.9 billion in currency swaps. Swap rates on contracts due in January 2015 increased six basis points, or 0.06 percentage point, to 10.57 percent.

The currency has rallied 12 percent since Aug. 22, when the central bank announced a $60 billion program of swap and credit line offerings to bolster the real and curb import price increases. A stronger real can also make exports more expensive, reducing the competitiveness of Brazilian factories.

“The real has strengthened a lot, and there’s the government’s perception that it’s not benefiting exports,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil in Sao Paulo, said in a telephone interview.

The currency also fell as speculation eased that the 15 billion real ($6.9 billion) signing bonus paid by the winner of the auction for rights to explore the Libra offshore oilfield would boost dollar inflows.

State-run Petroleo Brasileiro SA will have a 40 percent stake in the consortium that won rights, more than the minimum 30 percent, reducing the share of the signing bonus paid by Petrobras’s foreign partners.

Swap rates rose as economists raised their forecast for annual inflation this year. They increased their projection to 5.83 percent from 5.81 percent, according to the median of about 100 estimates in a central bank survey published today.

Brazil’s policy makers voted unanimously on Oct. 9 to raise the target lending rate to 9.5 percent from 9 percent, marking the fourth straight time they increased borrowing costs by a half-percentage point.

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