Real Rises as Tombini Says Brazil May Use Reserves to Halt Drop

The real posted the biggest gain among major emerging-market counterparts as central bank President Alexandre Tombini said Brazil may use its reserves to bolster the currency.

The currency appreciated 1.4 percent to 2.3935 per U.S. dollar at the close in Sao Paulo after falling yesterday toward a five-month low reached Feb. 3. Swap rates on contracts maturing in January 2017 dropped eight basis points, or 0.08 percentage point, to 12.76 percent.

Policy makers will adjust their tools to slow inflation and may use reserves to reduce the impact of currency depreciation, Tombini told Exame magazine in an interview. The central bank’s press office declined to provide further comment when reached by Bloomberg News. Brazil announced in December the sale of foreign-exchange swaps until at least June to support the real and limit import price increases.

“The central bank feels it is accumulating too much derivative paper and so maybe its currency swaps program is coming to the end of the road,” Pedro Tuesta, an economist at 4Cast Ltd., said in a phone interview from Washington.

The real has dropped 2.5 percent in the past three months on concern fiscal deterioration will lead to a lower credit rating and amid speculation that the tapering of Federal Reserve stimulus will erode demand for emerging-market assets.

To support the currency, Brazil sold $197.1 million of foreign-exchange swaps today and rolled over $515.9 million of contracts expiring in March.

Hamilton Outlook

While the annual rate of consumer price increases slowed to a one-year low of 5.59 percent in January, it has remained above the 4.5 percent target since August 2010.

Inflation is still showing resistance, Carlos Hamilton, the central bank’s economic policy director, said at an event in Curitiba, Brazil. Last month’s slowed pace was partly a reflection of temporary factors such as reduced airline ticket prices, Hamilton said.

Brazil lifted the target lending rate on Jan. 15 by 50 basis points for a sixth consecutive meeting, increasing it to 10.50 percent. The central bank has raised borrowing costs by 325 basis points since April to curb inflation.

Hamilton made a “correct reading” on January inflation, Tony Volpon, the head of Americas research at Nomura Holdings Inc., said in a phone interview from New York. “The comment hints at maintaining the pace at 50 basis points in February.”

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