Real Drops as Brazil Seen Limiting Rollover of Currency Swaps

Brazil’s real fell on speculation the central bank will limit the rollover of currency swaps that have supported the world’s biggest two-month rally.

The currency depreciated 0.8 percent to 2.1905 per U.S. dollar. Swap rates on the contracts maturing in January 2015 dropped four basis points, or 0.04 percentage point, to 10.49 percent.

While the central bank extended maturities on $987 million of foreign-exchange swaps today after rolling over a similar amount yesterday, it didn’t say whether it would do so for the rest of the $8.9 billion of contracts maturing Nov. 1.

“The bank is rolling over little by little, just $1 billion at a time,” Daniel Mameri, a currency trader at Ativa SA in Sao Paulo, said in a telephone interview. “Perhaps the central bank won’t roll over all of the swaps.”

The real has gained 11 percent since Aug. 22, when Brazil announced a $60 billion program of swaps and credit lines to buoy the currency and curb import price increases. The real’s rally also boosts export prices, making the country’s manufacturing less competitive.

Central bank President Alexandre Tombini said today in a statement posted on the bank’s website that the currency program has been successful during a period of international transition.

Policy makers voted unanimously on Oct. 9 to raise Brazil’s target lending rate to 9.5 percent from 9 percent, marking the fourth straight time they increased borrowing costs by a half-percentage point.

Annual inflation slowed to 5.75 percent through mid-October, which is still more than a percentage point above the central bank’s target. Economists raised their forecast for consumer-price increases this year to 5.83 percent from 5.81 percent, according to the median of about 100 estimates in a central bank survey published Oct. 21.

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

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

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