Brazil’s Real Advances on Speculation Stimulus to Boost Growth

Brazil’s real advanced for a third day as speculation grew that the government’s efforts to fuel faster growth in Latin America’s largest economy will take hold in the second half of the year.

The real appreciated 0.4 percent to 2.0132 per U.S. dollar. Swap rates on the contract due in January 2014 rose one basis point, or 0.01 percentage point, to 7.77 percent.

President Dilma Rousseff’s government has pushed commercial banks to reduce lending rates and enacted tax cuts for industrial and consumer goods since the economy contracted in last year’s third quarter. Investment into Brazil is growing now on speculation the measures will begin to bolster growth, Flavia Cattan-Naslausky, a currency strategist at RBS Securities Inc., said by phone from Stamford, Connecticut.

“There are foreign inflows coming into the Brazilian equity market,” Cattan-Naslausky said. “There’s a positive expectation for the government’s measures.”

Inflows into Brazil totaled $942 million in July, the most since April, the central bank said yesterday.

Brazil’s central bank has cut borrowing costs by 450 basis points since August 2011 to a record low 8 percent. Traders are anticipating policy makers will reduce the Selic rate by 50 basis points at the Aug. 28-29 monetary policy meeting, and to as low as 7.25 percent in October, according to rate futures yields.

Stimulus Outlook

The government will announce additional stimulus moves in coming weeks, Finance Minister Guido Mantega said on Aug. 6.

Brazil’s gross domestic product grew at an annualized 0.8 percent rate in the first quarter. Industrial output fell 5.5 percent in June from the year before, and retail sales in May fell by 0.8 percent from April, the most in more than three years.

Economic growth will accelerate in the second half of this year, central bank director Aldo Mendes said at an event today in Sao Paulo.

The real’s gains are being limited by speculation the central bank will step in to prevent a strong appreciation, said Andre Perfeito, the chief economist at Sao Paulo-based Gradual Investimentos.

“The central bank won’t allow the real to strengthen beyond 2 per dollar,” he said in a telephone interview.

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