Brazil’s real rallied the most in the world as the central bank intervened to stem the currency’s drop and contain inflation in Latin America’s biggest economy.
The real advanced to a six-week high as the central bank sold $1.8 billion of currency swaps at two auctions and agreed to lend as much as $2 billion in foreign-exchange credit lines. Swap rates fell as speculation eased that policy makers will boost the target lending rate, known as the Selic, to cap consumer prices.
The currency jumped 1.5 percent to 2.0491 per U.S. dollar at the close in Sao Paulo, the strongest since Nov. 9. The gain was the biggest among all of the world’s currencies tracked by Bloomberg. The real pared its drop in 2012 to 8.9 percent after falling on Nov. 30 to a three-year low of 2.1360. Swap rates on the contract due in January 2014 fell three basis points, or 0.03 percentage point, to 7.14 percent today.
“The central bank aims to keep the real trading at around 2.05 in 2013,” Joao Paulo Correa, manager of foreign-exchange trading at Correparti Corretora, said in a phone interview from Curitiba, Brazil. “The swap auctions clearly show that its goal is to avoid raising the Selic rate in 2013.”
The central bank sold 27,500 of 40,000 currency swaps at its first auction today and 9,500 out of 40,000 at a second one, strengthening the currency. The credit lines were offered to help boost the supply of U.S. currency as Brazilian companies send dollars abroad to balance their books at year-end.
Policy makers left the target lending rate at a record low 7.25 percent last month following 10 straight reductions to support the economy.
Brazil’s IPCA index of consumer prices will rise 5.47 percent in 2013, according to the median forecast of about 100 economists in a Dec. 21 central bank survey published two days ago, when markets were closed. The economists had projected an increase of 5.42 percent a week earlier.
Annual inflation as measured by the IPCA gauge has exceeded the 4.5 percent midpoint of the central bank’s target range for 27 months. Consumer prices rose 5.53 percent in November from a year earlier, compared with an increase of 5.45 percent in the prior month, the statistics agency reported Dec. 7.
The real gained on Dec. 20 after Carlos Hamilton, the central bank’s director for economic policy, said a weaker exchange rate has contributed to inflation. Policy makers consider 2.05 per dollar as more “adequate” when creating economic forecasts than 2.10, Hamilton said.
Central bankers have swung this year between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening beyond 2 per dollar.