The real pared its drop after the central bank sold 17,600 out of 30,000 currency swap contracts worth $877 million before resuming its decline. Yields on interest-rate futures contracts rose the most in four years as policy makers unexpectedly stepped up the pace of increases in benchmark borrowing costs on May 29, saying inflation was undermining the economic recovery.
“Today, it’s less about the level of the real and more the pace of the move,” Flavia Cattan-Naslausky, a markets strategist at Royal Bank of Scotland Group Plc, said in a telephone interview from Stamford, Connecticut. “That made the central bank nervous.”
The real depreciated 1.4 percent to 2.1411 per U.S. dollar at 6:45 p.m. in Sao Paulo after declining 1.8 percent to 2.1495, the weakest intraday level since May 2009. Swap rates on the contract due in January climbed 38 basis points, or 0.38 percentage point, to 8.44 percent, extending the surge this month to 53 basis points.
The central bank also assessed demand for another swaps auction, its press office in Brasilia said.
This signals there will another auction on June 3, according to Reginaldo Galhardo, head of currency trading at Treviso Corretora in Sao Paulo.
The currency has traded in an intraday range of 1.94 to 2.15 per dollar this year as policy makers fluctuated between selling currency swaps to prevent it from falling too much and offering reverse currency swaps to rein in gains.
The central bank had last intervened in the foreign-exchange market on March 27, when it sold $995 million of currency swaps to push the real higher.
The real has lost 6.5 percent in May, its worst monthly performance since September 2011. It is the biggest loser this month among 24 emerging-market currencies tracked by Bloomberg after the South African rand.
The currency tumbled today as signs of a sputtering Brazilian economic recovery and a surge in U.S. Treasury yields sapped demand for higher-yielding assets.
“Other tools exist to combat inflation,” Mantega told reporters. The dollar’s rally reflects “an international shift, and there’s no reason we should be different.”
Embraer SA (EMBR3), the Brazilian planemaker that is the best performer on the Ibovespa equity benchmark in 2013, rallied 2.1 percent to a five-year high on speculation a weaker real will help boost revenue.
Swap rates surged two days after the central bank voted unanimously to raise the target lending rate by 50 basis points to 8 percent, surprising 38 of 57 economists surveyed by Bloomberg, who had expected a second straight increase of 25 basis points. The other 19 correctly forecast the increase. Brazil’s markets were closed yesterday for a holiday.
At its meeting last month, policy makers raised the benchmark by a quarter-percentage point to 7.50 percent. It had lowered borrowing costs by 5.25 percentage points in reductions that began in August 2011 to support economic growth.
“The board’s decision reinforced the credibility of the central bank, which showed a preoccupation with inflation,” Newton Rosa, the chief economist at SulAmerica Investimentos in Sao Paulo, said in a telephone interview. “The central bank should continue raising to 8.75 percent.”
Since central bank President Alexandre Tombini took office in January 2011, the annual rate of consumer price increases has remained above the 4.5 percent midpoint of policy makers’ target range. Inflation accelerated to 6.59 percent in March before easing to 6.49 percent last month.
Latin America’s largest economy grew 1.9 percent in the first quarter from a year earlier after expanding 1.4 percent in the previous period, the national statistics agency reported May 29 before the central bank’s rate decision. The median forecast of analysts surveyed by Bloomberg was for growth of 2.3 percent.
“We may be seeing a true ‘change in regime,’” Tony Volpon, the head of research for the Americas at Nomura Holdings Inc. in New York, wrote yesterday in a research note to clients. “If this is the case, the center of the inflation target may be in sight, and after a ‘short, sharp shock’ the central bank could begin cutting rates in 2014.”
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