Brazil Real Drops From Two-Week High on Outlook for Intervention

Brazil’s real fell from a two-week high on speculation the central bank will intervene to limit the currency’s advance to help exporters.

The real depreciated 0.3 percent to 1.9918 per U.S. dollar after rallying on April 5 to 1.9853, the strongest closing level since March 19. Swap rates due in January 2015 rose three basis points, or 0.03 percentage point, to 8.43 percent after earlier falling 8.35 percent, the lowest intraday level since March 6.

“The question now is when the central bank will intervene to stop the real’s appreciation, which has been very quick,” Francisco Carvalho, exchange-rate director at BGC Liquidez in Sao Paulo, said in a phone interview.

The currency closed on April 5 at a level stronger than 2 per dollar for the first time since March 20 after Finance Minister Guido Mantega said the government was studying cuts in taxes on profits earned by Brazilian companies abroad for products including ethanol.

The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by reining in gains.

Swap rates rose on bets the central bank will have to raise rates by May to control inflation, said Paulo Nepomuceno, a fixed-income strategist at Coinvalores CCVM.

“They won’t put off rate hikes beyond May,” he said.

Inflation Outlook

Annual inflation accelerated to 6.62 percent last month, according to the median forecast of economists surveyed by Bloomberg before the report on April 10. Consumer prices rose 6.31 percent in February from a year earlier, the fastest pace in 14 months. Policy makers maintain an inflation target of 4.5 percent, plus or minus 2 percentage points.

Minutes of the central bank’s March 5-6 meeting indicated that an increase in the benchmark lending rate from a record low 7.25 percent wasn’t imminent as policy makers said “a cautious management of monetary policy” was needed. Board members are scheduled to meet April 16-17.

Central bank president Alexandre Tombini said in Senate testimony last week that board members will wait for March inflation figures and other data before deciding on the next policy steps.

Swap rates earlier touched a one-month low as economists lowered their forecasts for growth and inflation. Latin America’s largest economy will expand 3 percent in 2013, according to the median estimate of about 100 analysts in a central bank survey published today. They forecast growth of 3.01 percent last week. The analysts cut their outlook for annual inflation to 5.70 percent from 5.71 percent.

“The latest central bank economists’ survey showed a modest decline in 2013 inflation and growth expectations,” Eduardo Suarez, a Latin America currency strategist at Bank of Nova Scotia in Toronto, said in an e-mailed report to clients.

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