Brazil Real Rises as Central Bank Intervention Supports Currency

Brazil’s real climbed to a two-week high as the central bank’s effort to support the currency offset declining demand for emerging-market assets spurred by speculation the U.S. will lead a military strike against Syria.

The real appreciated 1.1 percent to 2.3452 per dollar after falling last week to a four-year low. Swap rates on the contract due in January 2015 fell 12 basis points, or 0.12 percentage point, to 10.18 percent before the central bank’s decision today on borrowing costs.

The currency has rallied 3.8 percent since Aug. 22, when the bank announced a $60 billion intervention program to support the real. That is the best performance among all of the currencies tracked by Bloomberg.

“The central bank managed to interrupt the dollar’s gain for now,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA, said in a telephone interview.

Most swap rates fell today on eased speculation that the central bank will step up the pace of increases in borrowing costs to curb inflation.

The central bank shifted its attention in the second quarter from accelerating economic growth, raising the target rate by a quarter-percentage point from a record low 7.25 percent in April and doubling the pace of rate increases to a half-percentage point in both May and July.

Policy makers will raise the target rate by 50 basis points to 9 percent today, according to the median forecast of economists surveyed by Bloomberg.

‘Remains Complicated’

The decision on borrowing costs “should help encourage investors to sell dollars and invest in local fixed income, but with war in Syria imminent, the situation remains complicated,” Deives Ribeiro, a currency manager at Fair Corretora, said by phone from Sao Paulo.

Annual inflation slowed to 6.15 percent in the month through mid-August after surpassing the 6.5 percent upper limit of the central bank’s target range earlier this year.

Analysts monitoring Brazil’s economy this month cut their median growth forecast for 2013 and 2014 to 2.20 percent and 2.40 percent, the lowest estimates so far this year, according to a central bank survey published Aug. 26. Finance Minister Guido Mantega rolled back growth estimates this month to about 2.5 percent from 3 percent.

Before it's here, it's on the Bloomberg Terminal.