Brazil Real Posts Biggest Monthly Gain Since ’11 on Intervention

Brazil’s real posted its biggest monthly gain in almost two years after the central bank raised its forecast for inflation next year, adding to speculation that it will maintain intervention to support the currency.

The real advanced 1.6 percent to 2.2170 per dollar in Sao Paulo today, the best performance among 16 major currencies tracked by Bloomberg. It has climbed 7.6 percent this month, the most since October 2011, and has gained 0.7 percent in the third quarter.

“The market sees the central bank working for a more comfortable exchange rate to help fight inflation,” Jose Carlos Amado, a currency trader at Renascenca DTVM, said in a phone interview from Sao Paulo.

The currency has surged since Aug. 22, when Brazil announced a $60 billion intervention program after the real sank to the lowest in almost five years. Central bank President Alexandre Tombini signaled last week that the program would remain in effect.

Central bank policy makers said in their quarterly inflation report today that consumer prices will rise 5.7 percent next year even if they raise the target lending rate to 9.75 percent by year-end. The projection three months earlier was for annual inflation of 5.2 percent.

Following the release of the report, Carlos Hamilton, the central bank director for economic policy, told reporters in Brasilia that inflation remains at an “uncomfortable” level and that projections show a slow retreat.

Monetary Policy

Traders maintained bets that policy makers will increase the benchmark lending rate by a half-percentage point in October for a fourth straight meeting. The central bank has raised borrowing costs by 175 basis points to 9 percent since April, the most in the world.

Swap rates due in January 2015 rose 10 basis points, or 0.1 percentage point, to 10.24 percent today. Swap rates have fallen 29 basis this month, paring their quarterly increase to 37 basis points.

Consumer prices rose 5.93 percent in the year through mid-September, the first time in nine months annual inflation was below 6 percent. Policy makers seek to keep inflation within a range of 2.5 percent to 6.5 percent.

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