Brazil Real Falls on Fed Wagers as Tombini Sees Slower Inflation

Brazil’s real led global currency declines after the central bank chief said inflation will slow and as speculation mounted that the Federal Reserve will begin raising borrowing costs faster than previously expected.

The real weakened 1 percent to 2.2818 per dollar, the weakest since March 26. The drop was the biggest among 16 major currencies tracked by Bloomberg. Swap rates, a gauge of expectations for interest rate moves, increased 0.27 percentage point to 11.86 percent on contracts maturing in January 2017.

“Stronger numbers are coming from the U.S. economy, and any indication that monetary policy may change there before markets expected brings concern to emerging-market investors,” Sidnei Nehme, executive director at NGO Corretora in Sao Paulo, said in a telephone interview. “The real tends to trade closer to 2.30 per dollar for now than toward the 2.25 level.”

Brazil’s central bank President Alexandre Tombini said today at a Senate hearing that inflation will slow toward the official target if interest rates are maintained. Policy makers voted unanimously on July 16 to hold the target lending rate at 11 percent for a second straight meeting after nine consecutive increases to curb inflation.

Inflation is under control and will end this year within the target range of 2.5 percent to 6.5 percent as the economy slows and the effects of recent monetary tightening take hold, Tombini said.

Inflation Rate

Consumer prices increased 6.6 percent in July after climbing 6.52 percent in the prior month, according to the median forecast of economists surveyed by Bloomberg before the government’s Aug. 8 report.

To support the real and limit import price increases, Brazil sold $198.9 million of currency swaps today and rolled over contracts worth $395.2 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

Trading today is influenced more by external factors than Tombini’s comments, Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo, said by phone.

In the U.S., service industries expanded last month at the fastest pace since 2005, a report showed today. The Institute for Supply Management’s non-manufacturing index rose to 58.7, with a reading greater than 50 indicating expansion.

Fed Chair Janet Yellen told lawmakers last month that if labor markets improve faster than policy makers expect, then increases in borrowing costs will probably occur “sooner and be more rapid than currently envisioned.”

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