Brazil’s Real Declines on Outlook for Swaps Program as Oil Drops

Brazil’s real fell on speculation a program by the central bank aimed at supporting the exchange rate may be tapered. Currencies from commodity-exporting countries dropped globally as oil prices plunged.

The currency declined 1.3 percent to 2.5654 per dollar at the close of trade in Sao Paulo and dropped 3.4 percent in November. Swap rates, a gauge of expectations for changes in borrowing costs, rose 0.14 percentage point to 12.2 percent on the contract maturing in January 2017. It was still down 0.07 percentage point this month.

Central bank President Alexandre Tombini said yesterday that the country’s currency swaps program “meets the demand for protection in the economy,” which led to speculation among investors that the authority might end the intervention next year. The central bank adopted the swap program in August 2013 to reduce currency volatility and protect investors, Tombini said after President Dilma Rousseff confirmed he would remain at the helm of the central bank for her second term.

“Tombini’s speech brought some doubts and uncertainties about the continuation of the swap program,” Reginaldo Siaca, a foreign-exchange manager at Tov Corretora de Cambio in Sao Paulo, said in a telephone interview. “The end of it would certainly lead to a weaker real in the short term.”

Joaquim Levy, a former Banco Bradesco SA executive and Treasury secretary, was appointed finance minister by Rousseff yesterday. His tasks include restoring investor confidence and reviving growth in Latin America’s biggest economy.

Budget Surplus

Levy said yesterday that the government would pursue a primary budget surplus target, which excludes interest payments, of 1.2 percent of gross domestic product in 2015 and of at least 2 percent in 2016 and 2017. He also said the government would make public accounts more transparent, work to increase the economy’s productivity and aim to reduce gross public debt as a percentage of GDP.

Brazil’s currency also dropped amid a broad decline among commodity-related currencies as crude oil tumbled after OPEC decided to take no action to ease a global oil-supply glut.

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

Brazil’s gross domestic product grew 0.1 percent in the third quarter over the three previous months, the national statistics agency said today. The result, which pulls Brazil from the recession it entered in the first half of the year, was below the median estimate of 0.2 percent growth from 46 analysts surveyed by Bloomberg.

Economic Forecasts

This year’s economic expansion will slow to 0.3 percent from 2.5 percent in 2013, according to analysts surveyed by Bloomberg. That would fall short of the Latin American average for the fourth straight year. Growth will accelerate to 1 percent next year, the survey shows.

Standard & Poor’s reduced Brazil’s credit rating in March to one level above junk, citing a slowdown in economic growth and a deterioration in fiscal accounts.

The central bank under Tombini unexpectedly raised the target lending rate on Oct. 29 by a quarter-percentage point to 11.25 percent to slow inflation.

Before it's here, it's on the Bloomberg Terminal.