Brazil Real Tumbles as Central Bank Avoids Holding Rollover Sale

Brazil’s real fell the most this year after the central bank refrained from calling an auction to roll over foreign-exchange swaps, adding to speculation that it is easing support for the currency.

The real declined 1.3 percent to 2.2436 per U.S. dollar at the close of trade in Sao Paulo, the worst performance among 16 major currencies tracked by Bloomberg. The drop was the biggest since Dec. 11, pushing the currency down 0.3 percent for the week.

The central bank avoided scheduling an auction for today to extend maturities on swaps contracts due next month, marking the first time since April 3 that it didn’t call such a sale. The sale of swaps under a program to support the real and limit import price increases has helped it rally 5.2 percent this year, the most among 24 emerging-market currencies.

“By not announcing the auction, the central bank left the impression that it is done for now rolling over currency swaps, which had been supporting the real,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview.

The central bank, which usually sends statements calling rollover auctions the night before at 6:30 p.m. Sao Paulo time, declined to comment when contacted by Bloomberg News. It rolled over about $6.5 billion of the $8.7 billion in currency swaps due May 2. In March, the bank extended the maturity on about $7.5 billion of $10.6 billion of swap contracts due April 1. Brazil did sell $198.2 million of foreign-exchange swaps today.

In the interest-rate futures market, swap rates on contracts maturing in January 2015 climbed one basis point, or 0.01 percentage point, to 11 percent.

Current Account

The real declined today even after Brazil posted its smallest current-account deficit since November as foreign investment outpaced estimates.

The gap in the broadest measure of trade in goods and services shrank in March to $6.2 billion from $7.4 billion in the prior month, the central bank reported. Foreign direct investment rose to $5 billion, higher than the $3.5 billion median forecast of economists surveyed by Bloomberg.

Brazil reported two days ago net foreign currency inflows of $3.4 billion this month through April 17, which would be the biggest since May 2013.

Pacific Investment Management Co., which operates the world’s biggest debt fund, said last week that a plunge in Brazil’s government and corporate bonds has made the securities attractive again.

Standard & Poor’s cut Brazil’s credit rating one step to the lowest level of investment grade last month, saying sluggish economic growth and an expansionary fiscal policy are fueling an increase in the government’s debt.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Patricia Lara in Sao Paulo at plara6@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Richard Richtmyer

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