Brazil’s Real Rises as Currency Swap Rollover Offering Increased

Brazil’s real climbed as the central bank signaled that it will sustain support for the currency when it increased the number of foreign-exchange swap contracts offered in a rollover.

The real advanced 0.3 percent to 2.2755 per dollar in Sao Paulo. Swap rates, a gauge of expectations for interest-rate moves, fell seven basis points, or 0.07 percentage point, to 11.59 percent on contracts maturing in January 2017.

The central bank extended the maturity on all of the 10,000 currency swap contracts that it offered today, rolling over $494.2 million, compared with 8,000 available in prior daily auctions. The real dropped 1.1 percent last week as turmoil in Iraq sank demand for emerging-market assets.

“The decision comes after a week of higher volatility in trading with emerging-market currencies,” Alfredo Barbutti, an economist at Liquidez DTVM in Sao Paulo, said in a telephone interview. “The central bank recognized there was a bigger demand for dollars in the local market.”

The program of currency swaps to support the real and limit import price increases has helped push the currency up 3.7 percent this year after tumbling 13 percent in 2013. The central bank sold swaps worth $198.8 million today under the intervention due to expire in December.

Brazil had a trade deficit of $336 million this month through Aug. 10 after July’s surplus of $1.575 billion, the government reported today.

Swap rates dropped as a gauge of wholesale, construction and consumer prices declined more than estimated. The Getulio Vargas Foundation said its IGP-M index slid 0.31 percent in the 10 days starting July 21. The median forecast of economists surveyed by Bloomberg called for a 0.29 percent decrease.

Brazil Policy

Policy makers held the target lending rate last month at 11 percent for a second straight meeting after nine consecutive increases to curb inflation.

The national statistics agency reported last week that the annual increase in consumer prices slowed to 6.50 percent in July from 6.52 percent in the prior month. The official target range is 4.5 percent plus or minus 2 percentage points.

Latin America’s biggest economy will expand 1.2 percent in 2015, according to the median forecast of a central bank survey of about 100 analysts published today. That’s the lowest estimate since the start of data in January.

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