Brazil’s real climbed the most among major currencies as the central bank’s unexpected increase in interest rates showed that policy makers are taking steps to damp inflation in Latin America’s largest economy.
The real strengthened 1.7 percent to 2.4214 per U.S. dollar at 9:20 a.m. in Sao Paulo, the biggest advance among 16 major currencies tracked by Bloomberg. Swap rates, a gauge of expectations for changes in borrowing costs, increased 35 basis points, or 0.35 percentage point, to 12.18 percent on the contract due in January 2016.
Shorter-term swap rates surged as only one of 54 economists surveyed by Bloomberg correctly forecast the central bank’s decision yesterday to raise the target lending rate by a quarter-percentage point to 11.25 percent. The central bank said in its statement that the move would reduce the cost of ensuring an improved inflation outlook in 2015 and 2016.
The decision “was a massive surprise,” Benoit Anne, head of emerging-markets strategy at Societe Generale in London, wrote in an e-mailed response to questions. “This will prompt market participants to rethink their monetary policy outlook, with more hikes in the pipeline.”
The Getulio Vargas Foundation reported today that its index for wholesale, construction and consumer prices rose 0.28 percent this month, more than the forecasts of all 26 economists surveyed by Bloomberg. The gauge climbed 2.96 percent in the past 12 months.