Brazilian Real Leads Global Gains on Outlook for Economic Team

Brazil’s real extended its weekly rally to the biggest since January 2012 on speculation that President Dilma Rousseff is close to nominating a team capable of reviving Latin America’s largest economy.

The real strengthened 2.4 percent to 2.5223 per U.S. dollar at 4:13 p.m. in Sao Paulo, the biggest increase among 31 major currencies tracked by Bloomberg. The real declined on Nov. 17 to a nine-year low of 2.6089.

“The expectations that she will nominate a strong team are high now,” Joao Paulo de Gracia Correa, a foreign-exchange trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview.

The real climbed 3.5 percent this week as a government official with knowledge of the situation said Rousseff plans to announce a replacement for Finance Minister Guido Mantega in the next few days. Her new economic team will face the challenge of reviving growth after Brazil slipped into a recession in the first half of the year.

Former Treasury Secretary Joaquim Levy will be finance minister, and former Deputy Finance Minister Nelson Barbosa will be planning minister, Folha de S. Paulo reported. Levy, now superintendent director at Bradesco Asset Management, helped implement fiscal changes for Rousseff’s predecessor, President Luiz Inacio Lula Da Silva. Barbosa was deputy finance minister during the first two years of Rousseff’s term after serving in economic posts under Lula.

“Levy is well-known as an orthodox and pro-market policy maker who should help in the hard task of economic adjustment,” Tony Volpon, the head of emerging-market research at Nomura Holdings Inc., wrote in a research note to clients.

China Cut

The real also rose today as China, the largest trading partner of Brazil, cut benchmark interest rates for the first time since July 2012. The move benefited developing-nation currencies, Correa said.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, is the highest among 31 major currencies tracked by Bloomberg after the Russian ruble.

To support the currency, Brazil sold the equivalent of $197.4 million of foreign-exchange swaps today as part of an intervention program begun last year and rolled over contracts worth $681.9 million.

Swap rates, a gauge of expectations for changes in borrowing costs, declined 0.26 percentage point to 12.30 percent today on the contract maturing in January 2017, the lowest level since Oct. 31. They have fallen 0.43 percentage point this week.

Slower Inflation

The government reported two days ago that inflation unexpectedly slowed to within the official target range, reviving speculation that the central bank will limit further increases in interest rates.

Consumer prices rose 6.42 percent in the 12 months through mid-November, compared with the central bank’s preferred range of 4.5 percent plus or minus 2 percentage points.

Policy makers surprised investors when they raised the target lending rate by a quarter-percentage point to 11.25 percent three days after Rousseff was re-elected Oct. 26.

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