Brazil May Curtail Swaps Program as Real Gains, Mantega Says

Brazil’s central bank may curtail its program of swap and credit line auctions after the real rallied on the U.S. Federal Reserve’s decision to sustain its monetary stimulus, Finance Minister Guido Mantega said today.

The central bank’s currency intervention is flexible, Mantega told reporters in Sao Paulo, adding that it’s the bank’s decision to adjust the program. Mantega spoke after the real closed up 3.2 percent to 2.1860 per U.S. dollar, its strongest level since June 18.

“The central bank was acting as a function of the excesses that were occurring, and its role is to diminish volatility,” Mantega said. “The swaps program is not rigid. They have $60 billion to use through year-end, but how they’ll use it is unknown.”

The real’s drop to a nearly five-year low in August prompted policy makers to announce an intervention strategy. The program entails carrying out currency swap auctions of $500 million a day on Mondays, Tuesdays, Wednesdays and Thursdays, as well as credit line auctions of $1 billion a day on Fridays. The program is scheduled to run through at least Dec. 31.

A weaker real threatens to hamper the central bank’s struggle against consumer price increases that have stymied demand and investments in Latin America’s largest economy. Inflation near the top of the target range has also prompted the bank to lift the key rate more than any other major economy in the world this year.

An exchange rate of 2.4 reais per dollar, a level the currency surpassed in August, is “an exaggeration,” Mantega said. Brazil’s currency depreciated 3.8 percent against the dollar in the three months through yesterday.

‘Especially Vigilant’

Inflation remains at an “uncomfortable” level and policy makers must be “especially vigilant” to mitigate the pass-through of a weaker currency on consumer prices, central bank President Alexandre Tombini said earlier this afternoon in a congressional hearing in Brasilia.

The Fed today said it will continue its $85 billion of monthly bond purchases. Economists had forecast it would dial down monthly Treasury purchases by $5 billion, according to a Bloomberg News survey.

Brazil’s central bank has boosted the benchmark rate to 9 percent from 7.25 percent in four straight meetings to damp inflation, which in August slowed to 6.09 percent from 6.7 percent in June. The bank targets inflation of 2.5 percent to 6.5 percent.

The national statistics institute will release consumer price data through mid-September on Sept. 20.

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