Brazilian Real Leads Emerging-Market Declines as Support Eases

Brazil’s real led declines among emerging-market currencies after the central bank said it would ease its support even as inflation accelerates.

The currency wiped out its weekly gain as Brazil lowered the number of foreign-exchange swap contracts in Friday’s rollover offering. That shows policy makers don’t view the recent rally favorably, according to Jefferson Rugik, a trader at Correparti Corretora de Cambio. The real had posted the biggest advance among developing-nation tenders in June.

“It’s clear that the central bank does not want the real to strengthen beyond 3.10 per dollar,” Rugik said from Curitiba, Brazil. “That shows its preference to bolster exporters rather than using the currency as an instrument to control inflation.”

The government posted a trade surplus of $565 million for the week ended June 21, compared with $678 million in the prior period. That has revived concern that inflows are diminishing as Latin America’s largest economy heads toward a recession even as inflation accelerates at the fastest pace in more than 11 years.

The real depreciated 1.2 percent to 3.1343 per dollar at the close of trade in Sao Paulo, and was down 0.2 percent for the week. Swap rates, a gauge of expectations for changes in borrowing costs, on the contract maturing in January 2017 decreased 0.1 percentage point to 13.72 percent on Friday.

The central bank extended the maturity on 6,000 foreign-exchange swaps contracts worth $292.7 million, down from 7,100 Thursday.

Analysts at HSBC Holdings Plc, Nordea Bank AB and Credit Agricole SA, the top three forecasters in the four quarters through June 30 according to data compiled by Bloomberg, say political turmoil over budget cuts, stalled economic growth and the expectation of higher interest rates in the U.S. will lead to a drop of at least 3 percent in the real by year-end.

“For the medium term, the bias is for more depreciation, mostly due to the growth picture,” Maya Hernandez, a Latin America foreign-exchange strategist at HSBC, said in a telephone interview from New York. HSBC expects a decline in the currency to 3.20 per dollar by the end of 2015.

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