Bloomberg the Company & Products

Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Brazilian Real Declines Day After Intervention; Swap Rates Climb

March 12 (Bloomberg) -- Brazil’s real dropped a day after the central bank intervened to weaken the best-performing emerging-market currency this year.

The currency depreciated 0.4 percent to 1.9647 per U.S. dollar. Swap rates due in January 2014 rose six basis points, or 0.06 percentage point, to 7.91 percent after earlier falling four basis points.

The real declined yesterday from a 10-month high as the central bank sold $1 billion of reverse foreign-exchange swaps. The currency has pared its rally in 2013 to 4.4 percent, still the biggest among 25 emerging-market counterparts, amid accelerating inflation.

“The central bank has found a balance point for the real between 1.95 and 2 per dollar,” Jose Carlos Amado, a currency trader at Renascenca DTVM in Sao Paulo, said in a phone interview. “The government has a clear concern with inflation and depending on the flows it could let the real appreciate more, but in the short term is comfortable with this level.”

Swap rates rose after the National Confederation of Industry reported that industrial capacity utilization climbed to 84 percent in January from 82.9 percent in the prior month, adding to bets that the central bank will raise borrowing costs to curb inflation.

Central bank President Alexandre Tombini said at an event in Warsaw that inflation has been resilient since the second half of 2012. Food and services are the main sources of price pressure as a drop in poverty and a growing middle class boost demand, he said.

‘Lovely Tightening’

“Industrial capacity data had a lovely tightening, which is worrisome for inflation as it shows the idleness in the economy fell,” Andre Perfeito, the chief economist at Gradual Cctvm Ltda. in Sao Paulo, said in a phone interview. “And Tomibini said inflation has been resilient. The spirit of the market is ready for a rate hike and screams fire at any smoke.”

Swap rates dropped earlier a day after Finance Minister Guido Mantega said federal tax cuts on food staples will help curb inflation.

President Dilma Rousseff announced on March 8 that the government is cutting federal taxes on food staples after a report showed annual inflation accelerated to 6.31 percent in February, the fastest pace in 14 months.

Policy makers dropped a pledge to keep rates unchanged for a “prolonged period” from their statement last week as they left the target lending rate at a record low 7.25 percent.

Economic Outlook

Economists cut their 2014 growth forecasts in a survey published yesterday. Gross domestic product will expand 3.50 percent next year, according to the median estimate of about 100 analysts surveyed by the central bank, down from the prior projection of 3.65 percent.

The real rallied on March 8 as traders speculated that policy makers would let the currency appreciate after the government reported accelerated inflation.

The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by preventing excessive gains.

Brazil pushed the real down 9 percent in 2012 and 11 percent in the prior year as Mantega said developed economies were debasing currencies such as the dollar while driving up those of emerging nations.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.