Real Declines From Nine-Month High on Intervention After MantegaBlake Schmidt and Marisa Castellani
Brazil’s real fell from a nine-month high after the central bank intervened to stem gains triggered by Finance Minister Guido Mantega when he signaled the government would allow the currency to rise another 5 percent.
The currency slid 0.3 percent to 1.9727 per dollar at the close in Sao Paulo after rallying 0.8 percent to 1.9511, the strongest intraday level since May 11. The real gained 0.8 percent this week on speculation policy makers will let it advance to contain inflation. Swap rates due in January 2015 fell two basis points, or 0.02 percentage point, to 8.17 percent, paring their increase since Feb. 1 to 18 basis points.
The real rallied earlier today as Mantega said in an interview with Reuters that the government will curb gains in the currency if it reaches 1.85 per dollar. The currency then erased its advance after the central bank intervened by offering reverse foreign-exchange swaps for the first time since October.
“Mantega mentioned 1.85 as a potential new ceiling but interventions today signal that appreciation will be managed gradually in line with rising inflationary concerns,” Bernd Berg, an emerging-markets strategist at Credit Suisse Group AG, said by instant electronic message.
The currency rose yesterday after a central bank board member said in a phone interview with Bloomberg News that inflation is high, spurring speculation that policy makers will let the real strengthen to contain consumer prices.
The government may increase taxes on foreign inflows or buy dollars to thwart currency speculation, Mantega said in the interview with Reuters. Exchange-rate policy hasn’t changed and Brazil won’t allow speculative appreciation of the real, the Finance Ministry said in an e-mailed statement to Bloomberg News. The central bank auctioned $502 million of reverse currency swaps, selling 10,000 of 37,000 offered.
“Mantega gave a new ceiling for the market to test,” Reginaldo Galhardo, a currency trader at Treviso Corretora de Cambio in Sao Paulo, said in a phone interview. The level of “1.85 per dollar has become the new uncrossable limit, with the ceiling for central bank tolerance changing once again.”
Brazil pushed the real down 9 percent in 2012 and 11 percent in the prior year as Mantega said major economies were debasing currencies such as the dollar while driving up those of developing nations.
Rather than having the desired effect of boosting the economy, the weaker real did little more than spur inflation, which has exceeded the 4.5 percent midpoint of the central bank’s target range for 29 months.
The real traded last week at a level stronger than 2 per dollar for the first time since July as Brazil took steps including exempting foreigners from a tax on real-estate funds traded on the stock exchange, encouraging speculation that inflows would sustain the currency.
Swap rates fell today after central bank President Alexandre Tombini said in an interview with GloboNews that annual inflation won’t exceed the 6.5 percent upper limit of the central bank’s target range in the first half of 2013.
Policy makers held the target lending rate at a record low 7.25 percent last month for a second straight meeting after the slowest two years of economic expansion in a decade. The central bank has lowered benchmark borrowing costs by 5.25 percentage points since August 2011 in the most aggressive cuts among Group of 20 nations.