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Brazilian Real Falls From Three-Month High on Mantega’s Comment

Brazil’s real retreated from a three-month high as Finance Minister Guido Mantega said the central bank may curtail its currency intervention program.

The real declined 0.7 percent to 2.2017 per U.S. dollar, the biggest drop this month. It rallied 3.2 percent yesterday to 2.1860, the strongest since June 18, as the U.S. Federal Reserve unexpectedly refrained from curbing a stimulus program that has boosted emerging markets. Swap rates on the contract due in January 2015 rose one basis point, or 0.01 percentage point, to 10.12 percent today.

“The government showed it is satisfied with the level of the real,” Reginaldo Galhardo, the head of currency trading at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “Mantega says he doesn’t speak for the central bank, but he ends up doing so anyway.”

Mantega told reporters in Sao Paulo yesterday that the central bank’s intervention program is flexible and that it’s the bank’s decision to make changes. The real posted the best performance among major emerging-market currencies yesterday after the Fed decided to maintain the $85 billion pace of monthly bond buying, saying it needs to see more signs of economic improvement.

Brazil’s currency has climbed 11 percent since Aug. 22, when the central bank announced a $60 billion program of intervention to bolster the currency and rein in inflation. The bank sold $497 million of currency swaps today.

A floating currency is the best protection against shocks, and the central bank may offer more swaps auctions in the exchange market as needed, central bank President Alexandre Tombini said yesterday at a congressional hearing in Brasilia.

Inflationary ‘Pressure’

“In the medium and long term, that movement will benefit the Brazilian economy, though in the short term it constitutes an inflationary pressure,” Tombini said of the depreciation.

Inflation remains at an “uncomfortable” level and policy makers must be “especially vigilant” to mitigate the pressure of a weaker currency on prices, Tombini said.

The real tumbled to a 4 1/2-year low the day before the intervention announcement, boosting the price of imports. The currency has lost 6.9 percent this year.

The central bank lifted the target lending rate by 1.75 percentage points this year to 9 percent after inflation surpassed the upper limit of its 2.5 percent to 6.5 percent target range for the first time since 2011.

Volatility in the real will increase because of the Fed’s decision to defer tapering, Luciano Coutinho, the president of Brazil’s state development bank, said in an interview yesterday at Bloomberg’s headquarters in New York.

‘The Uncertainty’

“For us, the sooner it starts and ends, the better,” Coutinho said. “I would rather see it start today and have some date to finish because then we will feel the whole impact. The worst thing is the uncertainty.”

The real’s three-month implied volatility, a gauge of future swings in the currency, rose today to 13.52 percent after falling yesterday to a one-month low.

The Treasury sold zero-coupon bills due in 2014, 2015 and 2017 for 10.7 billion reais and fixed-rate bonds due in 2019 and 2023 for 1.5 billion reais in auctions today.

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