Brazilian Real Declines as Mendes Damps Intervention Speculation

Brazil’s real dropped as central bank director Aldo Mendes damped speculation that the monetary authority will intervene to stem declines.

The currency depreciated 0.4 percent to 2.1322 per U.S. dollar at 12:20 p.m. in Sao Paulo after rallying as much as 0.6 percent. Swap rates on the contract due in January 2016 dropped one basis point, or 0.01 percentage point, to 9.44 percent.

“The central bank isn’t worried about the pass-through of a weak real to inflation,” Roberto Padovani, the chief economist at Votorantim Ctvm, said by phone from Sao Paulo.

The real erased its gain as Mendes said at an event in London that there is nothing the central bank can do as long as the currency’s depreciation is linked with that of its peers. The monetary authority would probably have an opportunity to intervene if the real traded differently than other currencies, according to Mendes.

The currency tumbled to a four-year low on May 31, prompting the central bank to intervene by selling 17,600 currency swap contracts worth $877 million to stem the real’s decline. The intervention was the first in the foreign-exchange market since March 27.

Central bank President Alexandre Tombini said June 2 in an interview at an Istanbul conference that the weak real’s impact on inflation was probably limited.

The real tumbled 6.5 percent in May, the biggest monthly decline since September 2011, on signs of sputtering growth in Latin America’s largest economy and as speculation grew the Federal Reserve may taper stimulus that has bolstered emerging-market assets.

Currency Range

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.

Brazil’s industrial production grew 1.8 percent in April from a month earlier after climbing 0.8 percent in the prior month, the national statistics agency reported today. The median forecast of economists surveyed by Bloomberg was for a 1 percent increase.

Policy makers raised the target lending rate by 50 basis points to 8 percent on May 29 to curb inflation. The decision surprised 38 of 57 analysts surveyed by Bloomberg, who had expected a second consecutive 25 basis point increase.

Since Tombini took office in January 2011, the annual rate of consumer price increases has remained above the 4.5 percent midpoint of the central bank’s target range. Inflation accelerated to 6.59 percent in March before easing to 6.49 percent in April.

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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