Brazil Real Climbs as Polls Seen Showing More Support for Silva

Brazil’s real rose amid speculation polls that may be released tomorrow will show more support for former Environment Minister Marina Silva in a runoff election against President Dilma Rousseff.

The real climbed 0.1 percent to 2.2436 per U.S. dollar. Swap rates on contracts maturing in January 2015 increased two basis points, or 0.02 percentage point, to 10.80 percent.

Speculation that Rousseff will lose her bid for re-election amid a faltering economy has helped to push the real up 5.3 percent in 2014, the most among 31 major currencies tracked by Bloomberg. A Datafolha poll published Aug. 29 showed Silva would have 50 percent of voter support in an October second-round vote against Rousseff, who would have 40 percent backing. The survey polled 2,874 people and had a margin of error of plus or minus two percentage points.

“There are expectations among traders that the polls will show Marina rising, and the market is watching that very closely,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a phone interview. “Silva’s government could be more friendly to investors than Rousseff’s.”

Silva published last week her campaign platform that calls for a cut to state-subsidized loans, full independence for the central bank to set monetary policy, a free-floating exchange rate and a fiscal policy that would help ease inflation.

Finance Minister Guido Mantega said yesterday in an interview at Bloomberg’s office in Sao Paulo that Silva’s plan to gain investors’ confidence and slow inflation is reckless.

Industrial Output

Shorter-term swap rates climbed today as a report showed industrial production increased more than analysts had forecast, adding to speculation that policy makers will resume raising borrowing costs next year.

The national statistics agency reported today that industrial output rose 0.7 percent in July from the previous month, more than the median forecast of analysts surveyed by Bloomberg, which called for a 0.5 percent advance.

“Inflation pressure remains in the near to mid term, and a discussion of a rate increase next year will happen,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said in a telephone interview.

Consumer prices increased 6.51 percent in the year through August, according to the median forecast of economists surveyed by Bloomberg before the Sept. 5 report from the national statistics agency. The official target is 4.5 percent plus or minus two percentage points.

Brazil Recession

Swap rates dropped on Aug. 29 after the government reported that Brazil slipped into a recession for the first time since 2009. Gross domestic product shrank by 0.6 percent in the April-June period from the previous three months after contracting a revised 0.2 percent in the first quarter, the national statistics agency said.

The central bank is expected by economists surveyed by Bloomberg to hold the target lending rate steady tomorrow for a third straight meeting. Policy makers raised the benchmark by 3.75 percentage points to 11 percent in the year through April to curb above-target inflation.

To support the real and limit import-price increases, Brazil sold foreign-exchange swaps today worth $197.5 million as part of an intervention program. The central bank has refrained from announcing an auction to roll over the $6.68 billion in contracts expiring Oct. 1.

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