Brazilian Real Rallies as Fed Reduces Stimulus at Measured Pace

Brazil’s real advanced the most since April as the U.S. Federal Reserve avoided speeding up the pace of reductions in a stimulus program that has supported emerging-market assets.

The real rose 1.5 percent to 2.2276 per dollar in Sao Paulo, the biggest increase since April 4. Swap rates on contracts maturing in January 2017 fell nine basis points, or 0.09 percentage point, to 11.48 percent.

Most major developing-nation currencies gained as the Fed reiterated that it will probably “reduce the pace of asset purchases in further measured steps” and that it expects rates to stay low for a “considerable time” after the bond-buying ends. In Brazil, a report showed that consumer prices increased 6.41 percent in the 12 months through mid-June, approaching the 6.5 percent upper limit of the official target range.

“The Fed’s decision didn’t bring surprises, which is good for the real,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview. “We shouldn’t see changes in monetary policy there in the near term.”

President Dilma Rousseff’s support has slipped as the economy slowed and inflation accelerated before the October election. According to a June 4-7 poll of 2,002 people conducted by public opinion research company Ibope, her backing fell to 38 percent this month from 40 percent in May.

Speculation that she will face a runoff has helped push the real up 6 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg.

Currency Swaps

To support the real and limit import price increases, Brazil sold $198.3 million of foreign-exchange swaps today and rolled over contracts worth $494 million. The central bank announced June 6 that it was extending its intervention, which was initially scheduled to end this month.

Slowing economic growth spurred the central bank to hold its benchmark lending rate at 11 percent on May 28 after nine consecutive increases to curb inflation.

In the U.S., the Fed trimmed bond-buying by $10 billion for a fifth straight meeting, to $35 billion, keeping it on pace to end the program late this year.

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