Brazil will extend its program of currency swaps sales and dollar loans into 2014, central bank President Alexandre Tombini said after the real closed yesterday at the lowest level in more than three months. The real strengthened.
Policy makers may act to mitigate volatility in local financial markets, Tombini said today at an event in Sao Paulo. Brazil is ready to weather a transition period in global markets, he said.
The real’s 9.7 percent drop in the past six months, the biggest among 16 major currencies tracked by Bloomberg, has pressured consumer prices in the world’s second-largest emerging market. Inflation has remained above the mid-point of the central bank’s target range for three straight years even as policy makers extend the world’s biggest tightening cycle.
“In 2014, the central bank won’t exit the stage,” Tombini said today. The program of offering hedge to investors by selling swaps will be extended with “some adjustments.”
The real extended earlier gains and rose 1.22 percent to 2.3616 at 2:17 p.m. Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, rose three basis points to 10.70 percent.
The central bank on Aug. 22 announced a $60 billion program of swaps and credit line auctions to prevent the real from weakening further and driving up the price of imports.
The objective of extending the currency plan is more to control currency volatility than target a specific exchange rate, according to Jankiel Santos, chief economist at Banco Espirito Santo de Investimento.
The central bank is saying, “everyone, you don’t need to panic,” Santos said. “We will continue supplying protection if necessary.”
The central bank has raised borrowing costs by 50 basis points in the last five meetings following a quarter-point boost in April. Indonesia and Pakistan are the only other major economies tracked by Bloomberg that have boosted rates this year.
Price increases in the 12 months through November probably slowed to 5.81 percent, according to the median estimate in a Bloomberg survey of 25 economists. While that’s above the 4.5 percent midpoint of the central bank’s target range, it’s down from a 2013 high of 6.70 percent in June.
The national statistics agency is scheduled publish the official inflation (BZPIIPCY) figure for November tomorrow.
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