Real Climbs as Brazil Will Extend Support for Currency Into 2015

Brazil’s real rose for a third straight day as central bank President Alexandre Tombini said this week that swap auctions supporting the currency of Latin America’s largest economy will continue in 2015.

The real gained 0.1 percent to 2.6595 per dollar at the close of trade in Sao Paulo, paring its decline for the week to 0.2 percent. The currency tumbled Dec. 16 to a nine-year low.

Tombini told reporters that day the central bank will offer $50 million to $200 million in daily currency swaps to bolster the real in 2015 and said details will be provided soon. Brazil began the intervention program last year to limit import price increases as part of an effort to curb inflation.

“Investors are trading on news that the currency depreciation has an impact on domestic prices and that the swaps program will be defined,” Flavio Serrano, a senior economist at Banco Espirito Santo de Investimento SA in Sao Paulo, said in a telephone interview.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among emerging-market currencies tracked by Bloomberg after the Russian ruble and Colombian peso. The real has declined 11 percent this year.

The central bank last extended the intervention program in June, saying it would continue to offer $200 million in currency swaps each business day through at least Dec. 31. Brazil sold the equivalent of $195.5 million of swaps today and rolled over contracts worth $487.2 million.

While the government reported today that annual inflation accelerated to 6.46 percent in the 12 months through mid-December, the rate remained within the official target range of 2.5 percent to 6.5 percent.

Inflation Outlook

Fiscal consolidation “will facilitate this process of inflation converging to 4.5 percent in 2016,” Tombini said this week in an interview aired on Globo News.

Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, rose two basis points, or 0.02 percentage point, to 12.93 percent today on the contract due in January 2016. They were up 38 basis points for the week.

The central bank reported the November deficit in the current account, the broadest measure of trade in goods and services, was the biggest in 10 months. The gap widened to $9.3 billion from $8.1 billion a month earlier.

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