Brazil’s real extended the biggest three-month drop among major currencies on speculation a $60 billion intervention program isn’t enough to stem the slide.
The real fell 1.3 percent to 2.3799 per dollar in Sao Paulo. It jumped the most in almost two years Aug. 23, the day after the central bank said it will auction $1 billion of loans every Friday and offer $500 million worth of foreign-exchange swaps four times a week for the rest of 2013.
Policy makers are stepping up efforts to support the real after it declined 14 percent over the past three months, raising concern that its tumble will fuel inflation already running near the top end of the government’s target. As part of the intervention program, the central bank sold all 10,000 currency swaps offered in an auction today.
“We still need time to see if these measures will really produce an effect,” Francisco Carvalho, the currency director at Liquidez Dtvm, said in a phone interview from Sao Paulo.
Brazil’s real dropped the most among 24 emerging market currencies after the Mexican peso and the Indian rupee today as investors weighed whether the U.S. Federal Reserve next month will reduce stimulus that’s boosted demand for the Latin American country’s securities, Carvalho said.
Swap rates due January 2015 rose 10 basis points, or 0.10 percentage point, to 10.34 percent. About 100 economists in a weekly central bank survey cut their 2014 economic growth forecast to 2.4 percent, from 2.5 percent the week before. The economists raised their median forecast for inflation this year to 5.8 percent, from 5.74 percent in the previous survey.
Consumer prices as measured by the IPCA-15 index climbed 0.16 percent in the month through mid-August, the national statistics agency reported Aug. 21. Annual inflation eased to 6.15 percent after surpassing the 6.5 percent upper limit of the central bank’s target range earlier this year.
Credit Suisse Group AG raised its year-end forecast for the central bank’s benchmark Selic lending rate to 10 percent, from a previous forecast of 9.25 percent.
“The risk of inflation increasing substantially suggests that it is necessary to promote monetary tightening in greater magnitude and for a longer period,” the bank said in an e-mailed report.
Indonesian policy makers said Aug. 23 that they will increase foreign-currency supplies to stem a sliding rupiah, while allowing more mineral exports this year to narrow a current-account deficit and spur economic growth. Peru’s central bank sold a record $600 million in the local foreign-exchange market on Aug. 21 to support the sol after it touched a three-year low.
In its defense of the real, Brazil’s central bank has yet to tap into its $373 billion in foreign reserves, which are up from $261 billion three years ago and $48 billion a decade ago.
The intervention plan announced Aug. 22 adds to swap and credit-line actions already announced this year totaling $45 billion. The central bank had been conducting the offerings without an established schedule. The banks said any rollovers of swap contracts wouldn’t be part of the currency program announced last week.
Brazil’s business credit delinquency index rose 2.9 percent in July from the month before, the biggest increase since March 2013, according to Serasa Experian.
Brazil has raised its target lending rate more than any major economy in 2013, increasing borrowing costs by 1.25 percentage point from a record low 7.25 percent in April.