Brazil’s Real Declines on Fed Tapering Concern; Swap Rates Rise

The real declined for a third day as speculation that the Federal Reserve will curtail U.S. monetary stimulus outweighed the Brazilian central bank’s efforts to bolster the currency.

The real depreciated 1.5 percent to 2.3305 per dollar at the close of trading in Sao Paulo, the most among 24 emerging-market currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2017 rose nine basis points, or 0.09 percentage point, to 12.19 percent.

A report today showed fewer Americans than projected filing for unemployment benefits, after Fed officials signaled in minutes of their October meeting published last week that they may taper their $85 billion in monthly bond buying in coming months if the economy improves as anticipated.

“We have a backdrop of global dollar strengthening because of the discussions about the reduction of Fed stimulus,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil, said by phone from Sao Paulo.

To support the real and curb import price increases, Brazil’s central bank sold foreign-exchange swaps for $47 million today as part of a $60 billion intervention program. It also extended the maturity on $1.1 billion of foreign-exchange swaps in a rollover auction today.

The central bank will lift the key overnight lending rate by 50 basis points for a fifth straight time at the conclusion of its two-day monetary policy meeting today, trading in swap rates shows.

‘No Certainty’

Brazil has raised benchmark borrowing costs to 9.5 percent from a record low 7.25 percent this year in a bid to cool consumer demand and hold down prices. The rate increase is the biggest among 49 central banks tracked by Bloomberg.

Most short-term swap rates declined today on speculation policy makers will signal a slowdown in borrowing cost increases over coming months. Yields on the contract due in January 2015 fell one basis point to 10.82 percent.

“The question is whether they change the statement,” Alfredo Barbutti, an economist at BGC Liquidez DTVM, said by phone from Sao Paulo. “Swap rates have risen a lot the last few weeks, and there’s no certainty over what they will say.”

Brazil’s cabinet chief, Gleisi Hoffmann, said in an interview yesterday that she wants the Supreme Court to be “sensible” as it began deliberations today on lawsuits dating back two decades that threaten to cost the nation’s lenders a quarter of the capital in the banking system.

The real also fell on concern Brazil’s highest court will rule against banks in a case that may cost the lenders $65 billion. The court postponed a ruling until February 2014, Justice Joaquim Barbosa said today in Brasilia.

Latin America’s biggest economy would be shaken and credit might contract by as much as 1 trillion reais if the high court rules against the banks, former Finance Minister Marcilio Marques Moreira said in an interview. Lenders such as Caixa Economica Federal and Banco do Brasil may be required to reimburse clients for losses stemming from government policies during the hyperinflation era 20 years ago.