(Bloomberg) — Brazil’s retail sales in October increased more than economists forecast, as consumers continued to shop in the face of higher interest rates. Swap rates rose.

Sales jumped 1 percent after a 0.4 percent gain in September, the national statistics agency said today in Rio de Janeiro. That was the third straight increase and above the median 0.5 percent forecast from 35 economists surveyed by Bloomberg.

Shoppers face steeper borrowing costs after the central bank boosted the benchmark Selic to its highest level in more than three years to control inflation. Even as rates climb and consumer confidence tumbles, the personal loan default rate has fallen to its lowest since 2011.

“I’m cautious on calling a recovery until I see all the way through to January and February,” Daniel Snowden, emerging markets analyst at Informa Global Markets, said by phone from London. “If the trend can be sustained through the holiday period, then I’d to start to feel a little bit more upbeat that retail confidence is starting to come back to Brazil.”

Swap rates on the contract due January 2016 rose six basis points, or 0.06 percentage point, to 12.57 percent at 10:07 a.m. local time. The real was little changed at 2.6533 per U.S. dollar.

Sales of food, beverages and tobacco at hypermarkets and supermarkets rose 1.3 percent after a revised 0.2 percent decline in September. Sales of apparel rose 2 percent after a 2.6 percent decline the previous month.

Retail sales in October rose 1.8 percent from last year, versus a median forecast for a 1 percent increase and the second consecutive positive reading. The broader retail index, which includes cars and construction materials, fell 2.6 percent from a year ago, versus a median estimate of a 3.2 percent decline, the institute said.

What’s Needed

Brazil’s central bank will do what’s needed to achieve a more benign inflationary outlook, its president, Alexandre Tombini, said at an event yesterday. Annual inflation in November slowed to 6.56 percent, still above the top of the central bank’s target range of 2.5 percent to 6.5 percent.

“The central bank, at present, is working to make inflation resume as soon as possible its convergence to the target of 4.5 percent,” Tombini said in Sao Paulo.

Doubled Pace

His speech came hours after the release of minutes from bank directors’ Dec. 2-3 monetary policy meeting, at which they voted unanimously to double the pace of rate increases and bring the Selic to 11.75 percent. Policy makers in the minutes said they expect fiscal policy will become tighter, and additional rate adjustments will be done “with parsimony.”

The most recent rate increases have yet to pass through to consumers, which is why it is too soon to say positive retail data mark the start of a trend, according to Informa’s Snowden.

Brazil crawled out of recession in the third quarter, growing 0.1 percent. Consumer spending dropped 0.3 percent, failing to grow for the third straight period. In November, consumer confidence fell to a nearly six-year low, according to the Getulio Vargas Foundation.

Economists surveyed Dec. 5 by the central bank cut their 2014 growth forecast to the lowest ever for the year, 0.18 percent, down from 2.5 percent last year.

Finance Minister-designate Joaquim Levy has pledged more rigorous fiscal discipline to shore up government finances, whose deterioration has put Brazil’s credit rating in jeopardy. Levy, who could take office as soon as this week, has yet to announce measures to cut expenses or boost revenue to meet the government’s 2015 primary budget surplus target.

Budget Proposal

Brazil’s Planning and Budget Ministry on Dec. 4 sent to Congress an updated 2015 budget proposal that seeks a primary surplus, which excludes interest payments, of 1.2 percent of gross domestic product, which Levy first disclosed Nov. 27.

Analysts from Moody’s Investors Service, including Erick Rodrigues, wrote in a note Dec. 4 that higher inflation and tighter credit conditions will constrain consumer confidence in 2015 and slow sales of discretionary goods. Social welfare programs will continue to support spending amid the government’s fiscal tightening, they said.

Weak growth and deteriorating fiscal results led Standard & Poor’s in March to cut the country’s sovereign debt rating to one level above junk. In September, Moody’s followed by cutting Brazil’s outlook to negative.

A cooling labor market will also weigh on retail sales going forward, according to Newton Rosa, chief economist at SulAmerica Investimentos in Sao Paulo.

Today’s number “is much more an accommodation of falls in past months than effectively a recovery of sales,” Rosa, the most accurate Brazil retail forecaster among analysts surveyed by Bloomberg, said by phone. “The trend of retail, extrapolated to the long term, remains one of deceleration.”

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