Real rises to two-month high as Tombini seen allowing advance

Brazil’s real advanced to a two-month high on speculation the central bank will allow it to gain further to ease inflation concern.

The currency gained 0.3% to 2.0269 per U.S. dollar at 1:04 p.m. in Sao Paulo, the strongest level on a closing basis since Oct. 25. Swap rates due in January 2015 decreased four basis points, or 0.04 percentage point, to 7.70 percent.

About 100 economists in a weekly survey published today raised their median forecast for the benchmark IPCA index of consumer prices by the end of 2013 to 5.49 percent from 5.47 percent the week before. Alexandre Tombini, the central bank president, strengthened the real in November by selling currency swaps after it reached a three-year low.

“With the depreciation of the real, a yellow light has come on,” said Francisco Carvalho, the head of currency at Liquidez DTVM. “Inflation will continue to cause more concern in the short term.”

The annual rate of consumer price increases as measured by the IPCA gauge has exceeded the 4.5 percent midpoint of the central bank’s target range for 27 consecutive months. Inflation unexpectedly accelerated to 5.53 percent in November from 5.45 percent the month before, the statistics agency reported Dec. 7. The statistics agency will release figures for last month on Jan. 10.

The IGP-DI inflation index, composed of 60 percent wholesale prices, 30 percent consumer prices and 10 percent construction costs, rose 0.66 percent in December, the Getulio Vargas Foundation reported today. The median estimate of 23 economists surveyed by Bloomberg was for 0.65 percent increase.

GDP Outlook

Some swap rates dropped as economists in the central bank survey lowered their projection for growth, spurring speculation that the central bank will keep borrowing costs at record lows. Gross domestic product will expand 3.26 percent this year, according to the median forecast, down from 3.30 percent growth projected in the prior week. It was the fourth time in five weeks economists cut their 2013 forecasts.

“The local swap rate curve should drop in reaction to the continuous downward revisions of GDP forecasts,” Octavio de Barros, an economist at Banco Bradesco SA, said in an e-mailed report today.

Policy makers left the target lending rate at a record low 7.25 percent in November after 10 consecutive reductions since August 2011 to support growth.

The real has gained 2.1 percent since Dec. 20, when Carlos Hamilton, the central bank’s director for economic policy, said policy makers consider an exchange rate of 2.05 per dollar as more “adequate” when creating economic forecasts than 2.10.

Brazil’s central bank swung in 2012 between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening beyond 2 per dollar.

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