Brazil’s Real Rises as Tombini Says Swap Decision Yet to Be Made

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Brazil’s real climbed as central bank President Alexandre Tombini didn’t rule out extending an intervention program supporting the currency.

The real gained 0.2 percent to 2.5960 per U.S. dollar at the close of trade in Sao Paulo after falling 0.5 percent earlier today. The currency closed at a nine-year low Nov. 17.

The central bank has two weeks to watch the market and evaluate the situation, Tombini told reporters today after congressional testimony. The real dropped earlier as Tombini told lawmakers that the currency swap offerings authorized through the end of 2014 have fully achieved their goals.

“The swap program is important to give support to the real at a time when there is a lot of negative news coming out of Brazil,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said by phone.

The central bank began offering the currency swaps supporting the real and limiting import price increases last year as part of an effort to curb above-target inflation. Brazil sold the equivalent of $198.3 million of swaps today and rolled over contracts worth $491.6 million.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among 31 major currencies tracked by Bloomberg after the Russian ruble and Colombian peso.

Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, fell two basis points, or 0.02 percentage point, to 12.39 percent on the contract due in January 2017.

Brazil Policy

The central bank raised the target lending rate by 50 basis points to 11.75 percent on Dec. 3, saying in its statement that future increases in borrowing costs will probably be conducted with “parsimony.”

While a government report showed last week that consumer prices rose at an unexpectedly slower rate of 6.56 percent in the 12 months through November, the pace still exceeded the official inflation target of 2.5 percent to 6.5 percent.

Brazil’s gross domestic product expanded 0.1 percent in the third quarter after a recession in the first half of 2014. Analysts surveyed by Bloomberg project Latin America’s largest economy will grow 0.25 percent this year, which would be the weakest pace since 2009.

Slowing growth and deteriorating fiscal accounts led Standard & Poor’s to cut the nation’s sovereign debt rating in March to one level above junk.

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