Brazilian Real Advances on Economic Expansion; Swap Rates Rise

Brazil’s real rallied the most in almost a month after Federal Reserve Chairman Ben S. Bernanke said he wouldn’t rule out more stimulus and a report showed Brazil’s economy grew at the fastest pace in a year.

The real appreciated 0.9 percent to 2.0308 per dollar, the biggest one-day gain since Aug. 3. The currency advanced 1.3 percent this month. Swap rates on contracts due in January rose one basis point, or 0.01 percentage point, to 7.27 percent.

Brazil’s gross domestic product expanded 0.4 percent in the second quarter, four times the revised 0.1 percent first-quarter increase, the national statistics agency reported. The median forecast of 51 economists surveyed by Bloomberg was for 0.5 percent growth.

“The second-quarter numbers show a faint recovery,” Luciano Rostagno, the chief strategist at Banco WestLB do Brazil SA, said in a phone interview from Sao Paulo. “Third-quarter numbers should be even better.”

The real briefly pared its advance and then extended gains after Bernanke said he wouldn’t rule out further bond purchases to boost growth and reduce unemployment, which he called a “grave concern.” Two rounds of large-scale asset purchases totaling $2.3 trillion have so far failed to reduce the jobless rate to less than 8 percent.

The currency rallied with most of its emerging-market peers as Bernanke’s comment on further stimulus boosted risk appetite and stronger growth figures fueled speculation the central bank will soon stop cutting borrowing costs, said Deives Ribeiro, the head of foreign-exchange trading at Fair Corretora de Cambio e Valores.

‘Dollars to Brazil’

“The market believes the economic environment is going to get better,” Ribeiro said by phone from Sao Paulo. “With the rate cuts ending, investors may begin calculating how much they gain by bringing dollars to Brazil.”

Brazil’s government will keep taking action to weaken the real to help local manufacturers, Finance Minister Guido Mantega said this week in Brasilia.

The real is “consolidating” at a level weaker than 2 reais per dollar thanks to the government’s policy to stem its advance as other countries try to gain an advantage through devaluation, Mantega said.

The currency has declined 8.1 percent against the greenback in 2012, the biggest drop among the dollar’s 16 most-traded counterparts tracked by Bloomberg.

Target Lending Rate

The central bank reduced the target lending rate at this week’s Copom meeting by a half-percentage point to a record low 7.50 percent. If there is room for an additional adjustment, it “should be carried out with maximum parsimony,” the central bank said in a statement.

The government has cut payroll taxes and lowered levies on cars and appliances to kickstart growth, which is trailing that of Russia, India and China.

Swap rate contracts maturing before January 2015 climbed while longer-term rates fell on speculation higher borrowing costs in 2013 will cool inflation in succeeding years, said Newton Rosa, the chief economist at SulAmerica Investimentos in Sao Paulo.

“The market is still responding to the Copom meeting,” Rosa said in a telephone interview.

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