Brazil Real Drops After Biggest Gain in Year; Swap Rates Decline

Brazil’s real posted the only drop among major dollar counterparts tracked by Bloomberg after rallying the most in a year yesterday.

The currency depreciated 1.5 percent to 2.2541 per U.S. dollar at 5:20 p.m. in Sao Paulo. The real climbed 2.1 percent yesterday in the biggest gain since June 2012. Swap rates on contracts maturing in due January 2015 fell 10 basis points, or 0.10 percentage point, to 9.45 percent, the lowest level on a closing basis since June 10.

“Yesterday, we had a big appreciation of the real,” Joao Paulo de Gracia Correa, a currency manager at Correparti Corretora, said in a telephone interview from Curitiba, Brazil.

Other major dollar counterparts including the Mexican peso rose today on speculation Federal Reserve Chairman Ben S. Bernanke will seek in congressional testimony tomorrow to damp investor expectations for a reduction in stimulus.

Brazil’s swap rates declined to a one-month low after a report showed inflation slowed, damping speculation that the central bank will increase borrowing costs at a faster pace.

The Getulio Vargas Foundation said today that its IGP-10 inflation index, which monitors wholesale, construction and consumer prices, increased 0.43 percent in the month ended July 10, less than the 0.56 percent forecast of 21 economists surveyed by Bloomberg and the prior 0.63 percent increase.

“The inflation indexes are showing improvement,” Gustavo Rangel, the chief Latin America economist at ING Bank NV in London, said in a telephone interview. “This doesn’t eliminate the need for more rate increases at the next meeting, but the spike in inflation becomes a little less worrying.”

Rate Decision

Brazil’s policy makers raised the target lending rate by a half-percentage point to 8.50 percent on July 10 in the third increase this year from a record low 7.25 percent. They raised it by a quarter-percentage point in April and 50 basis points in May. The next meeting is scheduled for Aug. 27-28.

Consumer prices rose 6.70 percent in June from a year earlier, the fastest pace in 20 months, exceeding the 6.50 percent upper level of the central bank’s target range, the government reported July 5. The median forecast of economists surveyed by Bloomberg was for a 6.77 percent increase.

The real rallied yesterday as Credit Suisse Group AG boosted its three-month target for the real to 2.20 per dollar from 2.30 and said it will rally to 2.15 in 12 months, citing central bank intervention, interest-rate increases to contain inflation and reduced concern that China’s economy is slowing. Nomura Holdings Inc. said the currency would “at least” return to 2.20 in coming weeks.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net

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

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