Brazil’s real rallied the most among emerging-market dollar counterparts as central bank President Alexandre Tombini said the intervention program to support the currency and curb import prices will be extended into 2014.
The real advanced for the first time in five days, appreciating 1.4 percent to 2.3567 per U.S. dollar at the close of trading in Sao Paulo after falling yesterday to a three-month low. Swap rates on the contract maturing in January 2015 rose one basis point, or 0.01 percentage point, to 10.68 percent.
The program of offering a hedge to investors by selling currency swaps will be extended with “some adjustments,” Tombini said at a Sao Paulo event. In a signal that the central bank will sustain the pace of increases in borrowing costs, board members said in minutes of the November policy meeting published today that they must remain vigilant on inflation.
“Tombini sent the signal he had to send,” Tony Volpon, the head of emerging-market research for the Americas at Nomura Holdings Inc., said by phone from New York. “Ending the program could quickly push the dollar to 2.50 reais.”
Policy makers voted unanimously to raise the target lending rate on Nov. 27 by a half-percentage point for a fifth straight meeting. They have raised borrowing costs by 2.75 percentage points this year to 10 percent, the most among 49 central banks tracked by Bloomberg.
While economists surveyed by Bloomberg before tomorrow’s government report on inflation forecast that it slowed to 5.81 percent in the 12 months through November, such a reading would still be more than a percentage point higher than the central bank’s 4.5 percent target.
“Continuity of the rhythm of monetary policy adjustments currently under way is appropriate,” the central bank said in the minutes. The international economy and Brazil’s fiscal situation will influence policy makers in their Jan. 14-15 rate decision, the bank said.
The board’s statement on Nov. 27 omitted language used in previous communiques to signal that additional increases of a half-percentage point in borrowing costs are needed to rein in consumer prices. The day after the decision, traders pared bets on a further 50 basis point advance.
“This is going to dash any hopes that the central bank will call an immediate halt to interest-rate hikes,” Neil Shearing, the chief emerging-markets economist at Capital Economics Ltd., said by phone. “The central bank’s concerns are about loose fiscal policy and high inflation.”
The real has fallen 5.9 percent in the fourth quarter, the most among 16 major currencies, on concern Brazil’s fiscal deterioration will lead to a reduced credit rating and amid speculation the Federal Reserve will curtail a stimulus program that has supported emerging-market assets.
Standard & Poor’s and Moody’s Investors Service lowered their outlooks this year on Brazil’s credit rating, which both have at two levels above junk. The government’s budget deficit as a percentage of gross domestic product swelled to 3.4 percent in October, the widest since 2009.
To support the real, the central bank sold currency swaps for $496 million today as part of the $60 billion intervention announced in August.