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Brazil Real Drops on Speculation Swaps Rollover Will Be Limited

Oct. 22 (Bloomberg) -- Brazil’s real fell to a one-week low on speculation the central bank will limit the rollover of swaps that have supported the world’s biggest currency rally.

The real slid 0.2 percent to 2.1799 per U.S. dollar at 11:32 a.m. in Sao Paulo, the weakest on a closing basis since Oct. 16. Swap rates on contracts maturing in January 2015 fell five basis points, or 0.05 percentage point, to 10.52 percent.

While the central bank plans to auction as much as $1 billion of foreign-exchange swaps today, it didn’t say in an e-mailed statement whether it will roll over the remaining $7.9 billion in swaps that mature Nov. 1. The real has gained 12 percent since Aug. 22, when policy makers announced a $60 billion program of swaps and credit lines to buoy the currency and curb import price increases.

“The smaller size of the rollover signals the central bank’s intention of not letting the dollar rise much beyond the current level,” Paulo Petrassi, managing partner at Leme Investimentos, said in a phone interview from Florianopolis, Brazil. “The central bank needs to look at both ends due to it’s need to control inflation and on the other hand it’s need to improve the trade balance.” A stronger currency also increases export prices.

The real pared an earlier decline of as much as 0.7 percent after the U.S. Labor Department reported that employers added fewer jobs than forecast, adding to speculation that the Federal Reserve will maintain for a longer period a stimulus program that has supported emerging-market assets.

Brazil’s currency fell yesterday as state-run Petroleo Brasileiro SA took a 40 percent stake in the consortium that won the rights to the country’s biggest oil discovery, limiting the share of an initial 15 billion real fee its foreign partners will pay in dollars.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@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

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