Brazil’s real advanced to a level stronger than 2 per dollar for the first time this week as initial public offerings for as much as $6.7 billion lured foreign investors to Latin America’s biggest economy.
The currency rose 0.1 percent to 1.9988 at the close of trading in Sao Paulo after touching 1.9961, the strongest intraday level since April 17. It last closed at a level stronger than 2 per dollar on April 16. The real rallied 0.6 percent this week.
“We have capital inflows from the IPOs,” Ures Folchini, the head of fixed income at Banco WestLB do Brasil SA in Sao Paulo, said in a telephone interview. “The tendency is for the real to remain near 2 per dollar.”
Three Brazilian companies went public this week, raising as much as 13.5 billion reais when accounting for the so-called greenshoe option of underwriters to sell more shares, according to data compiled by Bloomberg. They included BB Seguridade Participacoes SA, the insurance unit of Banco do Brasil SA, which is raising as much as 11.5 billion reais in the world’s biggest IPO this year.
Brazil’s central bank reported April 24 that foreign currency net outflows this year to date narrowed to $983 million as of April 19 from $5.1 billion a week earlier.
Swap rates erased increases today after a report showed that the U.S. economy grew less than forecast in the first quarter. The Commerce Department said gross domestic product rose at a 2.5 percent annual rate, lower than the median forecast of 3 percent by economists surveyed by Bloomberg.
“The economic data have been weakening abroad, and the central bank has been paying more attention to the foreign environment,” Roberto Padovani, the chief economist at Votorantim CTVM in Sao Paulo, said in a phone interview. “One cannot expect the central bank to be very tough with monetary policy given the global scenario.”
Carlos Hamilton, the Brazil central bank’s director for economic policy, said yesterday that Brazil’s monetary authority may have to step up the pace of increases in borrowing costs to curb inflation. Some fellow board members endorsed the comments by Hamilton made at an event in Sao Paulo, said a person familiar with policy matters who asked not to be identified because discussions aren’t public.
Swap rates due in January 2015 fell eight basis points, or 0.08 percentage point, to 8.28 percent today, reversing earlier increases. They fell seven basis points this week.
The monetary policy committee voted 6 to 2 last week to increase the Selic target lending rate to 7.50 percent from a record low 7.25 percent, saying in its statement that “the high level of inflation” and “resilience of inflation” required a response.
Brazil’s swap rates tumbled the day after the April meeting as the central bank raised borrowing costs less than some analysts had forecast. A survey by Bloomberg showed that 18 of 58 analysts had projected an increase of 50 basis points.
The central bank’s statement last week was tempered by recognition that “external uncertainties” required that monetary policy be managed with caution.