Brazil Real Rises on Central Bank Outlook, Petrobras Bond Sale

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Brazil’s real rose for the first time in three days as state-controlled Petroleo Brasileiro SA planned a $2.5 billion sale of 100-year bonds and amid speculation that the central bank will raise interest rates this week.

The real was one of only four currencies to rally against the dollar among 24 emerging-market countries as Rio de Janeiro-based Petrobras launched a sale of $2.5 billion in 100-year bonds at 8.45 percent, ending its six-month hiatus from the bond market. Traders were also betting that the central bank will increase the target lending rate on Wednesday by another half-percentage point to 13.75 percent.

The real appreciated 0.3 percent to 3.1684 per dollar at the close of trade in Sao Paulo.

“The Petrobras deal is positive for Brazil’s market as a whole and helped the real at the end of the day,” Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “It shows that, despite recent scandals involving the company, investors are still willing to buy its bonds.”

GDP Contraction

The currency fell declined earlier on Monday as Credit Suisse Group AG predicted a deeper contraction in Latin America’s largest economy.

Gross domestic product will shrink 1.8 percent this year, analysts at Credit Suisse wrote in a research report. Its previous outlook was for a 1.3 percent decline. Analysts in a central bank survey published Monday reduced their median forecast to a 1.27 percent contraction, which would be the biggest drop since 1990.

Traders bet that policy makers will increase the target lending rate on Wednesday by another half-percentage point to 13.75 percent as inflation stays above target.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, increased 0.10 percentage point to 13.42 percent.

The central bank extended the maturity Monday of 7,000 foreign-exchange swap contracts worth $342.2 million, compared with 8,100 in previous days. The sale of swaps supporting the real was halted in March.