Brazilian Real Strengthens as Central Bank Extends Intervention

Brazil’s real climbed the most in emerging markets as the central bank extended its intervention program to support the currency.

The real gained 0.8 percent to 2.2293 per U.S. dollar at the close of trade in Sao Paulo, the biggest increase among 24 developing-nation currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2017 increased two basis points, or 0.02 percentage point, to 11.54 percent after falling last week to seven-month low.

The sale of foreign-exchange swaps to bolster the real and limit import price increases has helped the currency climb 6 percent in 2014, the most in emerging markets. A “certain drop in demand” cited by central bank President Alexandre Tombini on May 22 had encouraged some traders to speculate that he would cut back the program.

“The measure is positive for the currency and shows the central bank intends to keep supporting it,” Silvio Campos Neto, an economist at Tendencias Consultoria Integrada in Sao Paulo, said in a telephone interview. “Now the market is waiting for details regarding the continuation of the program.”

Brazil sold swaps worth $199 million today under the intervention program that had been scheduled to expire this month and rolled over contracts worth $494.3 million. The central bank said June 6 after the close of markets that information on the extension will be provided later.

The real has also gained this year on speculation President Dilma Rousseff will face a runoff following October’s vote after overseeing a stalled economy and faster inflation.

Growth Outlook

Economists cut their annual growth forecast to 1.44 percent this year from 1.50 percent, according to the median of about 100 estimates in a central bank survey published today. The estimate is the lowest since policy makers started publishing the data.

Brazil held the target lending rate at 11 percent on May 28 after increasing it from a record low 7.25 percent over nine consecutive meetings beginning April 2013 to curb inflation.

The national statistics agency reported June 6 that consumer prices increased 6.37 percent in the 12 months through May, the fastest pace in almost a year and approaching the 6.5 percent upper limit of the official target.

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