Brazil Real Rallies on Speculation Losses to Prompt Intervention

Brazil’s real rallied the most this month on speculation policy makers will intervene to stem its losses after central bank President Alexandre Tombini said last week they will do whatever is needed to slow inflation.

The real appreciated 0.6 percent to 2.0090 per U.S. dollar at 3:35 p.m. in Sao Paulo after closing on May 10 at 2.0204, the weakest level since April 23. Swap rates on the contract due in January 2017 declined two basis points, or 0.02 percentage point, to 8.98 percent today.

The real ended last week weaker than 2 per dollar as an April trade deficit fueled speculation that the flow of dollars into Brazil will slow. Policy makers “will do what’s needed to consolidate inflation at lower levels this year and next,” Tombini said in a May 10 interview with Globo television. A central bank official in Brasilia, who asked not to be identified because of internal policy, declined a request for comment from Bloomberg News.

“The market is more cautious about the possibility of the central bank intervening,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA in Sao Paulo, said in a telephone interview. “Tombini said he’s worried about inflation, and the market knows that the currency is an instrument to help control price increases.”

The central bank has swung this year between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by reining in gains.

Inflation Outlook

Economists covering Brazil’s economy raised their 2013 inflation forecast to 5.80 percent from 5.71 percent in the previous week, according to the central bank’s survey of about 100 analysts published today.

Annual inflation has remained above the 4.5 percent midpoint of the central bank’s target range of 2.5 percent to 6.5 percent since Tombini took office in January 2011. It slowed to 6.49 percent in April after accelerating to 6.59 percent in the previous month.

Brazil reported on May 2 a trade deficit of $994 million in April, compared with the $950 million forecast by economists surveyed by Bloomberg.

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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