Real Declines on Bets Brazil Will Limit Currency Swaps Rollover

Brazil’s real fell on speculation the central bank will limit rollovers of foreign-exchange swaps that have supported the world’s biggest two-month rally.

The real depreciated 0.6 percent to 2.2033 per U.S. dollar, the weakest on a closing basis since Oct. 9. Swap rates on contracts maturing in January 2015 rose three basis points, or 0.03 percentage point, to 10.52 percent.

Brazil sold $989 million of currency swaps in a rollover auction after extending the maturities of $1.98 billion in contracts in the past two days. It has rolled over about one-third of the $8.9 billion of swaps maturing Nov. 1. This week Finance Minister Guido Mantega said that Brazil is reducing its intervention in currency markets.

“The central bank doesn’t want the real to gain further,” Newton Rosa, the chief economist at Sul America Investimentos in Sao Paulo, said in a phone interview.

Since Aug. 22, when policy makers announced a $60 billion program of swaps and credit lines to buoy the currency and curb import price increases, the real has gained 11 percent. The rally also boosts export prices, making the country’s factories less competitive.

Central bank President Alexandre Tombini said yesterday in a statement posted on the bank’s website that the currency program has been successful during a period of international transition.

Swap rates rose as the real’s decline today revived speculation that the central bank will increase its target lending rate to 10 percent next month to curb inflation.

Policy Decision

Brazil’s policy makers voted unanimously Oct. 9 to raise the benchmark to 9.5 percent from 9 percent, marking the fourth straight time they increased borrowing costs by a half-percentage point.

Swap rates fell earlier today as the national statistics agency reported that Brazil’s jobless rate climbed to 5.4 percent in September. The median forecast of economists surveyed by Bloomberg projected unemployment to stay at 5.3 percent, the lowest level this year.

Analysts raised their economic growth forecast for 2013 to 2.50 percent from 2.48 percent, according to the median of about 100 estimates in a weekly central bank survey published Oct. 21. Growth slowed to 0.9 percent last year from 2.7 percent in 2011, capping the weakest two years of expansion since 1999, according to data compiled by Bloomberg.

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