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Brazil Real Rallies Most in Emerging Markets on Interest Rates

Brazil’s real climbed the most in emerging markets on speculation the central bank will keep raising borrowing costs, sustaining flows from investors in countries with interest rates close to zero.

The currency appreciated 0.9 percent to 2.3279 per U.S. dollar, the biggest increase since March 5. Swap rates on contracts maturing in January 2018 rose four basis points, or 0.04 percentage point, to 13.04 percent.

“The resilience of the real reflects actions recently done by the central bank, such as rate hikes and swap auctions,” Carlos Kawall, the chief economist at Banco J. Safra in Sao Paulo, said in a telephone interview.

Brazil sold $198 million of currency swaps today under a program announced in December to support the real and limit import price increases. The central bank also held an auction to extend maturities on swaps due in April, rolling over $492.2 million. To curb inflation, policy makers have raised the target rate by 75 basis points this year to 10.75 percent, the largest increase among major economies after Turkey.

Central bank President Alexandre Tombini reiterated on March 18 that Brazil is acting to ensure inflation will slow to the 4.5 percent official target. Last week, the government reported that consumer prices climbed 5.68 percent in the 12 months through February.

A stress test showed that Brazil’s financial institutions have adequate capacity for shocks, according to a report published today by the central bank. Banks are ready to weather interest rates, exchange rates, default and real estate price shocks, the central bank said.

The real fell yesterday along with all of the other major currencies tracked by Bloomberg as more Federal Reserve officials predicted that the U.S. target lending rate will rise at least to 1 percent at the end of 2015.

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