May 22 (Bloomberg) -- Brazilian central bank President Henrique Meirelles’s warning yesterday against an “excess of euphoria” in the currency market may foreshadow bigger dollar purchases by policy makers to curb the real’s three-month rally, according to Standard Chartered Plc.

The central bank began buying dollars on May 8, initiating “step one” in its bid to temper the real’s advance to a seven- month high, said Mike Moran, a currency strategist at Standard Chartered, which gets most of its revenue from developing nations. Meirelles’s comments yesterday were “step two -- upgrade the level of verbal intervention.”

“And step three is clearly much more aggressive interventions,” Moran said in a phone interview from New York. He predicts the currency will gain to 1.9 per dollar by year-end from 2.0269 today.

The real has climbed 20.7 percent since March 2, the biggest advance among the six most-traded currencies in Latin America, as prices on the country’s commodity exports rebounded and investor demand for emerging-market assets picked up.

It’s up 14.2 percent this year, more than all 16 major currencies except for South Africa’s rand, in a reversal of the 33 percent plunge in the last five months of 2008. The UBS Bloomberg CMCI Commodity Index rose 22 percent since March 2.

‘Great Speed’

Meirelles told reporters in Brasilia yesterday that he’s worried that investors may have become too bullish on the strength of the recovery in Latin America’s biggest economy after the slowdown late last year. Brazil’s growth rate dropped to 1.3 percent in the fourth quarter from 6.8 percent in the third quarter as the global financial crisis deepened.

“The market looks to anticipate and when a consensus starts to form, it moves at great speed,” Meirelles said. “Investors and companies have in the past suffered big losses because of an excess of euphoria. We have alerted them to this risk.”

Sadia SA, the poultry exporter that was acquired by rival Perdigao SA this week, booked more than 3 billion reais of expenses related to derivatives in the second half. Votorantim Participacoes SA, a closely held producer of materials from aluminum to cement, spent 2.2 billion reais to settle wrong-way bets on currency derivatives last year.

Moran said Meirelles’s statements were “an escalation of the existing policy” after the central bank bought “very small” amounts of dollars in the foreign exchange market in recent days.

Reginaldo Galhardo, currency-trading manager at Treviso Corretora de Cambio in Sao Paulo, estimates the central bank purchased about $150 million a day from May 8 to May 19.

2 Per Dollar

Galhardo and Luiz Roberto Monteiro, currency manager at Sao Paulo-based Corretora Souza Barros, said policy makers stepped up those purchases to more than $1 billion on May 20. The central bank doesn’t disclose the amounts it buys or sells in the currency market.

The purchases are the first in eight months. The central bank halted them in September amid the global crisis and began to sell dollars. The country’s foreign reserves totaled $204.2 billion as of May 21, down 2.4 percent from a record high set on Dec. 17.

Roberto Padovani, chief Brazil economist at Banco WestLB, said the timing of the dollar purchases -- just as the real was approaching 2 per dollar -- has created speculation that policy makers were looking to prevent the real from breaking that level.

“Every time the currency approaches 2 per dollar, people naturally start to talk about the level,” Padovani said in a phone interview from Sao Paulo. What Meirelles “wanted to say was that the exchange rate is related to fundamentals. He wanted to give a signal that he’s not committed to a level.”

To contact the reporter on this story: Renato Andrade in Sao Paulo at randrade11@bloomberg.net

Last Updated: May 22, 2009 18:17 EDT