Brazil Real Declines as Mantega Signals End to Currency Measures

Brazil’s real fell to a two-week low after Finance Minister Guido Mantega said there is no need to take additional measures to intervene in the market as the local currency stabilizes at about 2 per U.S. dollar.

The real sank 0.6 percent to 1.9728 per dollar at the close of trading in Sao Paulo, the weakest since Feb. 6, after Mantega commented in a conference call with reporters. Swap rates on the contract due in January 2014 fell two basis points, or 0.02 percentage point, to 7.67 percent.

The decline in the real trimmed its gain this year to 4 percent, still the biggest among major currencies tracked by Bloomberg. The currency fell 9 percent last year as President Dilma Rousseff’s government intervened to limit gains and protect domestic industry.

“The currency is weakening because of Mantega’s remarks,” Joao Paulo de Gracia Correa, a currency manager at Correparti Corretora, said by phone from Curitiba, Brazil. “He’s stressing that the rate at 2 per dollar is good for the economy.”

In an interview in Moscow on Feb. 15, Mantega said the government wouldn’t allow the currency to over-appreciate in a bid to rein in consumer prices. A stronger currency helps tame inflation by making imports cheaper.

Most swap rates dropped today as diminished global growth prospects reduced speculation that Brazil’s central bank will boost borrowing costs to contain inflation.

Fed Statement

A gauge of euro-area services and manufacturing contracted at a faster pace in February than economists forecast. Minutes of the Federal Reserve’s January meeting published yesterday indicated several policy makers said the U.S. central bank should be ready to vary the pace of its $85 billion in monthly bond purchases stimulating the world’s biggest economy.

In Brazil, inflation in the month through mid-February as measured by the IPCA-15 index probably slowed to 0.62 percent from 0.88 percent in the prior period, according to the median forecast of economists surveyed by Bloomberg. The national statistics agency is due to publish its report tomorrow.

“Our basic scenario is still stable interest rates until the end of the year,” Rafael Laurindo, a senior economist at Porto Seguro Investimentos in Sao Paulo, said in a phone interview. “The picture abroad and at home is complex.”

The best way to cool inflation without jeopardizing growth is to keep borrowing costs at the current level for a “sufficiently prolonged” period, the central bank said in the minutes of its Jan. 15-16 meeting.

Central bank president Alexandre Tombini said in Brasilia on Feb. 19 that policy makers could adjust monetary policy as needed as they seek to reassure investors that the government won’t refrain from raising interest rates to contain inflation.

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