Brazil Real Rises as Intervention Sustains Gain: Sao Paulo Mover

Brazil’s real rose from a four-year low as the central bank intervened to support the currency’s gain after the U.S. payrolls report eased concern that the Federal Reserve will curtail its stimulus program.

The currency appreciated 0.7 percent to 2.2874 per U.S. dollar in Sao Paulo, paring its decline this week to 1.4 percent. The real closed yesterday at a level weaker than 2.3 per dollar for the first time since 2009.

The central bank sold $1.7 billion of foreign-exchange swap contracts to support the currency in the 21st day of auctions since May 31. The real’s three-month historical volatility climbed to 13.6 percent today, the highest since August 2012.

“We will continue to have this volatility until the Fed begins to unwind the stimulus, and it can be measured by the market,” Reginaldo Galhardo, currency manager at Treviso Corretora in Sao Paulo, said in a telephone interview.

The real remained lower on July 31 following three interventions by the central bank and only rallied after the Fed said it would maintain its program of monthly asset purchases.

Fed Chairman Ben S. Bernanke said in June that the U.S. central bank may start scaling down bond buying later this year and halt it around the middle of 2014 as long as the economy performs in line with expectations.

U.S. payrolls rose by 162,000 last month, the smallest increase in four months, the Labor Department reported today in Washington. The median forecast of economists surveyed by Bloomberg called for an increase of 185,000. The unemployment rate dropped to 7.4 percent.

Inflation Concern

The real has tumbled 12 percent in the past three months, the biggest drop among 24 emerging-market dollar counterparts. Depreciation boosts the price of imports and threatens to further fuel inflation, which helped spark nationwide street protests in June.

Brazil’s policy makers raised the target lending rate by a half-percentage point July 10 to 8.50 percent, the third advance this year. The central bank said in minutes of the meeting that it is appropriate to maintain the pace of increases in borrowing costs to curb inflation.

Swap rates on contracts maturing in January 2015 dropped 12 basis points, or 0.12 percentage point, to 9.72 percent today, paring their weekly increase to 32 basis points.

The government will cut import tariffs on basic materials from steel to textiles to improve competitiveness and help ease price increases, Finance Minister Guido Mantega told reporters yesterday in Brasilia.

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