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Brazil Real Drops on Central Bank Official’s Intervention Stance

Brazil’s real declined as central bank director Aldo Mendes said that intervention was unlikely as long as the currency didn’t fall more than its peers.

The currency slid less than 0.1 percent to 2.1251 per U.S. dollar after touching 2.1490 in Sao Paulo. Swap rates on the contract due in January 2016 dropped six basis points, or 0.06 percentage point, to 9.39 percent after rising yesterday to 9.45 percent, the highest close since June 2012.

The real tumbled to a four-year low on May 31, prompting the central bank to sell 17,600 currency swap contracts worth $877 million in its first intervention in the foreign-exchange market since March 27. Central bank president Alexandre Tombini said two days later in an interview at an Istanbul conference that the weak currency’s impact on inflation was probably limited.

“The local factor influencing the real is these comments from the central bank,” Roberto Padovani, the chief economist at Votorantim Ctvm in Sao Paulo, said in a telephone interview.

Brazil’s currency pared its decline today after Mendes said in a telephone interview with Bloomberg News that his comments on the currency at a London event were misinterpreted as if the central bank wouldn’t intervene. The monetary authority will act if the real doesn’t trade in line with its peers, according to Mendes.

The currency tumbled 6.5 percent in May, the worst performance among 16 major dollar counterparts after the South African, Australian and New Zealand currencies. It fell last month on signs of sputtering growth in Latin America’s largest economy and speculation that the Federal Reserve may taper stimulus that has bolstered emerging-market assets.

Real’s Range

The real has traded in an intraday range of 1.94 to 2.15 per dollar this year as policy makers fluctuated between selling currency swaps to prevent it from falling too much and offering reverse currency swaps to rein in gains.

The government could remove the IOF tax on financial transactions as the real has “very little room” for further deprecation, Itau Unibanco’s macro research team headed by Ilan Goldfajn wrote in an e-mailed report yesterday.

Finance Minister Guido Mantega declined to comment on speculation that the government will cut IOF taxes today and told reporters in Brasilia he would comment after a meeting with President Dilma Rousseff.

Industrial production grew 1.8 percent in April from a month earlier after climbing 0.8 percent in the prior month, the national statistics agency reported today. The median forecast of economists surveyed by Bloomberg was for a 1 percent increase.

Policy makers raised the target lending rate by 50 basis points to 8 percent on May 29 to curb inflation. The decision surprised 38 of 57 analysts surveyed by Bloomberg, who had expected a second consecutive 25 basis point increase.

Since Tombini took office in January 2011, the annual rate of consumer price increases has remained above the 4.5 percent midpoint of the central bank’s target range. Inflation accelerated to 6.59 percent in March before easing to 6.49 percent in April.

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