Brazilian Real Touches Seven-Week High on U.S. Stimulus Outlook

Sept. 16 (Bloomberg) -- Brazil’s real touched a seven-week high on speculation the next U.S. Federal Reserve chairman will maintain stimulus for a longer period, supporting efforts by the Latin American nation’s central bank to bolster the currency.

The real soared as much as 1.4 percent to 2.2486 per U.S. dollar, the strongest intraday level since July 26, before erasing its gain and falling less than 0.2 percent to 2.2844 at close in Sao Paulo. Swap rates on the contract due in January 2015 declined two basis points, or 0.02 percentage point, to 10.44 percent.

The Brazilian central bank sold $497 million of foreign-exchange swaps and rolled over $1.96 billion worth of contracts to support the currency and rein in inflation.

Policy makers “are maintaining a firm hand on the currency,” Roberto Padovani, the chief economist at Votorantim Ctvm, said by phone from Sao Paulo.

The real has rallied 6.7 percent since Aug. 22, when Brazil announced its $60 billion intervention program. The gain is the biggest among all currencies tracked by Bloomberg.

The central bank has lifted the target rate to 9 percent from a record low 7.25 percent in April, the fastest pace among major economies tracked by Bloomberg.

Brazil’s currency rallied earlier today along with most emerging-market counterparts after Lawrence Summers withdrew his candidacy as Fed chairman. Summers, a former U.S. Treasury secretary, would have tightened Fed policy more than his main rival, Fed Vice Chairman Janet Yellen, according to a Bloomberg Global Poll last week.

Growth Forecasts

Brazil’s gross domestic product will expand 2.40 percent this year, compared with the previous week’s forecast of 2.35 percent, according to the Sept. 13 central bank survey of about 100 analysts published today.

In an effort to tame inflation currently at 6.09 percent, policy makers over the past four meetings have raised the benchmark Selic by a total of 1.75 percentage points, the fastest pace of monetary tightening among 49 major economies tracked by Bloomberg. At 9 percent, Brazil’s central bank has the highest key rate in Latin America.

The central bank board said it’s “appropriate” to continue the current pace of rate increases, according to minutes of the Aug. 27-28 meeting.

Less than a week before the meeting, the central bank said it would offer $60 billion in swap and credit line auctions to stem a decline in the real, which on Aug. 21 reached the lowest level in almost five years. The currency has strengthened 6.6 percent since the Aug. 22 announcement, the best performance against the U.S. dollar worldwide.

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@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