Brazil’s Real Advances as Growth Outlook Offsets Interventions

  • Credit Suisse boosts economic forecasts for 2016 and 2017
  • Central bank is maintaining stepped-up pace of interventions

Brazil’s real climbed amid signs investors are growing more confident in the new administration’s ability to revive the economy, outweighing efforts by the central bank to weaken the currency.

The real gained 0.2 percent to 3.1864 per dollar on Monday in Sao Paulo. The government may boost its growth forecast for next year to 1.5 percent from 1.2 percent as some economic indicators point to a recovery, Folha de S. Paulo newspaper reported on Saturday, citing a presidential aide it didn’t name. Credit Suisse on Monday also raised its estimate for next year to 0.8 percent, and said the economy may contract 3 percent this year, less than it had previously expected.

The rosier outlook was enough to outweigh the effects of stepped-up efforts by the central bank to weaken the real, which has posted the world’s biggest currency rally this year. The monetary authority sold all 15,000 reverse-currency swaps offered, equivalent to buying $750 million in the futures market and maintaining an accelerated pace of intervention that it set last week. It previously offered $500 million in daily auctions.

"Brazilian risk keeps decreasing as we see improved forecasts for the country," said Camila Abdelmalack, the chief economist at CM Capital Markets in Sao Paulo. "The better external environment also helps the real."

A Bloomberg gauge of emerging-market currencies rose 0.4 percent as oil climbed and traders pushed back bets on higher U.S. interest rates. The cost of hedging Brazilian dollar-denominated bonds against losses in the credit-default swaps market for five years declined 3.4 basis point to 254.1 basis points, the lowest in over one year.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, were unchanged at 12.65 percent.

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