Brazil’s Real Advances to One-Week High After Rollover Offering

Brazil’s real climbed to a one-week high as a central bank auction extended maturities on currency swaps that helped fuel the world’s biggest two-month rally.

The real rose 0.4 percent to 2.1789 per dollar, the strongest closing level since Oct. 22. Swap rates on the contract due in January 2015 increased four basis points, or 0.04 percentage point, to 10.51 percent.

The currency posted its first weekly decline this month on Oct. 25 after policy makers extended the maturities in sales of only about one-third of the $8.9 billion of swap contracts maturing Nov. 1. The central bank sold $990 million today in a rollover auction before offerings over the next two days.

“The central bank is using currency swaps to manage the market,” Jose Carlos Amado, a currency trader at Renascenca Corretora in Sao Paulo, said in a telephone interview. “People are getting used to this situation. Whenever the dollar gets close to 2.15 reais, people buy it, and when it rises to 2.20 reais, they sell.”

The real has gained 12 percent since Aug. 22, when Brazil announced a $60 billion intervention program of swaps and credit lines to buoy the currency and curb import price increases. The rally, the biggest among all of the world’s currencies, also makes the country’s factories less competitive by boosting export prices. The bank placed contracts worth $496.2 million in an auction earlier today under the program.

Tombini Outlook

Central bank President Alexandre Tombini said last week that the currency program has been successful during a period of international transition while Finance Minister Guido Mantega said Brazil is reducing its intervention.

Economists said Brazil’s gross domestic product will expand 2.13 percent in 2014, the lowest median projection this year in a weekly central bank survey. They held their 2013 growth forecast from the prior week at 2.50 percent.

Policy makers signaled Oct. 9 that they will maintain the pace of increases in borrowing costs to curb inflation as they raised the benchmark rate to 9.50 percent, marking the fourth straight time they boosted it by a half-percentage point. Annual inflation slowed to 5.75 percent through mid-October, still more than a percentage point above target.

Shares of Petroleo Brasileiro SA rose today in Sao Paulo trading as state-owned oil producer sought approval from the government to raise domestic fuel prices. Chief Executive Officer Maria das Gracas Foster said in an Oct. 25 statement that she is seeking a fuel policy that brings discounted local prices more in line with global levels.

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