Real Declines as Mantega Says Brazil Poised to Curb Appreciation

Brazil’s real declined for the first time in six days as Finance Minister Guido Mantega said the government is ready to block exaggerated gains in the currency.

Mantega commented in Brasilia today after the real rallied beyond 2 per dollar on Jan. 28 for the first time in almost seven months as the central bank intervened to boost the currency as inflation accelerated.

The real depreciated 0.3 percent to 1.9908 per dollar at 1:54 p.m. in Sao Paulo, paring its rally this month to 3 percent, still the biggest among major Latin American currencies tracked by Bloomberg. Swap rates due in January 2014 rose one basis point, or 0.01 percentage point, to 7.20 percent.

“The government isn’t giving clear signals on what the exchange-rate regime is,” Marcelo Fonseca, an economist at M Safra & Co. in Sao Paulo, said in a phone interview. “Is it floating or administered within a currency band? It has to be one or the other. This creates uncertainty.”

Mantega said the exchange rate isn’t an instrument to control prices and a weaker currency helps to protect the domestic industry from foreign competition.

The currency rallied the most in seven months on Jan. 28 as the central bank sold $1.85 billion of foreign-exchange swap contracts at an auction that surprised traders.

Policy makers swung in 2012 between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by preventing the real from strengthening beyond 2 per dollar.

Fuel Prices

Yields on most interest-rate futures contracts rose as the state oil company said it would increase fuel prices and a report showed inflation slowed less than economists forecast, adding pressure on the central bank to raise borrowing costs.

Petroleo Brasilieiro SA said in a regulatory filing that it is increasing gasoline prices at refineries by 6.6 percent and diesel by 5.4 percent and is seeking to eliminate the discount between domestic and international prices.

“The gasoline prices increase inflation worries,” Ures Folchini, the head of fixed income at Banco WestLB do Brasil, said by phone from Sao Paulo.

The IGP-M index of producer, consumer and construction prices rose 0.34 percent in the month through Jan. 20 after previously climbing 0.68 percent, the Getulio Vargas Foundation reported today. The median forecast of economists surveyed by Bloomberg was for a 0.32 percent increase.

Inflation Target

Annual inflation has exceeded the 4.5 percent midpoint of the central bank’s target range for 28 consecutive months. The IPCA index of consumer prices rose 5.84 percent in December from a year earlier after increasing 5.53 percent in the prior period, the national statistics agency reported Jan. 10.

The outlook for inflation is getting worse in the “short term” while the recovery of domestic activity was less intense than expected, the central bank said in minutes of its Jan. 15-16 policy meeting published last week.

The best way to curb consumer price increases is to keep the target rate at a record low for a “sufficiently prolonged period,” policy makers said. The board held its benchmark at 7.25 percent for a second straight meeting.