Brazilian Currency Drops as Temer Says He’s Concerned by Rally

  • Central bank maintains stepped-up pace of interventions
  • Bank auctioned $750 million of reverse currency swaps

Brazil’s real weakened after the central bank intervened amid comments by acting President Michel Temer that signaled he’s worried about the currency’s world-beating rally this year.

Temer said Brazil needs to maintain a balanced exchange rate, neither too weak nor too strong, Valor Economico newspaper reported. The monetary authority offered 15,000 of reverse currency swaps, equivalent to buying $750 million in the futures market, maintaining an accelerated pace of intervention that it set on Thursday. It previously offered $500 million in daily auctions. The real fell 1.5 percent to 3.1922 per U.S. dollar Friday in Sao Paulo, the most among the world’s 16 most-traded currencies tracked by Bloomberg.

Policy makers are trying to keep a lid on the rally after the real surged 25 percent this year. The currency has strengthened amid optimism that Temer can trim the country’s budget deficit, end a string of credit-rating downgrades and restore confidence in the ailing economy. Concern that the currency’s advance would hamper exports has led the central bank to sell $57.8 billion of reverse swaps.

"The market is still digesting the central bank’s decision," said Mauricio Oreng, a senior strategist at Rabobank in Sao Paulo. "There is also some noise about how the market is interpreting comments from the acting president, and the real’s under-performance might indicate that doubts were raised about the government’s behavior toward the exchange rate."

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, was unchanged at 12.65 percent. They are down 0.06 percentage point this week.

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