The real edges higher as economists revised their inflation expectations upward after the Brazilian government reported last week that consumer prices increased 5.91 percent in 2013. The central bank survey indicated that revisions show an expectation of inflation hitting six percent versus previous forecasts of 5.97 percent. ““Inflation expectations aren’t getting any better,” said Norman Rosa, chief economist at Sul America Investimentos.
The government looks to support the real and decrease increases in import prices, Brazil will rollover auctions for currency swaps next month. Short-term swap rates jumped to a six-week high due to the revision in inflation expectation and the speculation that the Brazilian central bank will extend borrowing cost increases. Swap rates maturing on January 2015 increased 10 bps to 10.71 percent with the real increasing .1 percent to 2.3574 per dollar, strongest level in over two weeks.
Jose Carlos Amado, a currency trader at Renascenca DTVM, believes the government swap rollovers will help calm the market. “The central bank announcing the rollovers makes the market more at ease,” he said. The central bank will look to rollover $11 billion in currency swaps maturing on February 3.