Brazil Central Bank Buys Dollars in Bid to Slow Real’s Rally

Brazil’s central bank bought dollars in the currency forwards market for the first time since July in an effort to slow the real’s 9 percent rally this year that policy makers say could curb exports and undermine the rebound in Latin America’s biggest economy.

The central bank bought an unspecified amount of dollars in the currency forwards market at 1.7383 reais, according to a statement. The real rose 0.1 percent to 1.7179 per dollar today, extending its gain this week to 1.1 percent.

Policy makers are intervening in the foreign-exchange market amid speculation that $14 billion in Brazilian corporate bond offerings overseas this year will extend the real’s rally and hurt the manufacturing industry, said Flavia Cattan-Naslausky, a strategist at RBS Securities Inc. in Stamford, Connecticut. State-controlled Petroleo Brasileiro SA sold $7 billion of bonds overseas on Feb. 1 in the country’s largest corporate bond offering on record.

“They want to ensure that the improvement in industrial production continues,” Cattan-Naslausky said. “The worst may be over for the industrial sector, but the growth is still below trend.”

Finance Minister Guido Mantega said Jan. 23 that the government will keep implementing policies aimed at preventing currency gains in a bid to ensure economic growth of at least 4 percent this year.

Raised Taxes

The Brazilian government raised taxes on overseas loans and foreign-exchange derivatives last year after tripling the so-called IOF tax on foreign investors’ fixed-income purchases to 6 percent in 2010 in a bid to stem the real’s gains.

The central bank’s foreign reserves have almost doubled in the past four years to $355 billion as policy makers intervened to weaken the real.

Brazil’s government faces limits on how much it can do to prevent its currency from strengthening, Trade Minister Fernando Pimentel said in an interview this week in Port-au-Prince as he accompanied President Dilma Rousseff on a state visit.

The strength of the Brazilian economy is attracting foreign money, Pimentel said.

Industrial production rose at the fastest pace in seven months in December. Output increased 0.9 percent from the previous month, equal to an annualized 11.4 percent, the biggest jump since May 2011. Industrial output rose 0.3 percent last year, below the 10.5 percent pace in 2010, when the economy expanded at the fastest pace in two decades.

The real erased losses today after a government report showed that the U.S. jobless rate unexpectedly declined last month. The rate fell to 8.3 percent from 8.5 percent in December, a sign that growth is picking up in the world’s biggest economy, helping bolster demand for Latin American exports.

The real posted a fifth consecutive week of gains, the longest winning streak since October 2010.

Yields on Brazil’s interest-rate futures contract due in January 2013 rose five basis points, or 0.05 percentage point, to 9.5 percent today. The yield dropped 11 basis points this week.

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