Real Posts Weekly Advance as Brazil Refrains From Intervention

  • Central Bank head Goldfajn says space for intervention narrows
  • Swaps traders cut bets on borrowing costs as inflation slows

Brazil’s real advanced this week as the central bank signaled it won’t escalate efforts to weaken the currency, damping speculation it could increase the amount of reverse swaps it sells daily.

The Brazilian currency has gained 0.5 percent to 3.2440 per dollar over the past five days, its second weekly increase, even as weaker global commodities prices led to a drop on Friday. Central bank chief Ilan Goldfajn said Thursday that while the central bank has tools to intervene in the market without affecting the overall trend for exchange rates, the room for such actions is narrowing as monetary conditions in the U.S. return to normal. A gauge of emerging market currencies compiled by Bloomberg lost 0.4 percent Friday.

Policy makers revived the intervention program in March as the real headed toward the world’s biggest gains this year, which dimmed the outlook for exports, and have since sold $70.8 billion of the contracts. The currency has kept strengthening anyway amid optimism that the government of Acting President Michel Temer can trim a budget deficit, end credit-rating downgrades and restore confidence in its ailing economy.

"After rumors circulating among traders that the central bank could increase its daily swap sales, which tend to weaken the real, Goldfajn sent a clear message that the bank doesn’t intend to do so," said Camila Abdelmalack, the chief economist at CM Capital Markets in Sao Paulo. "In the absence of negative news, the real is benefiting from this."

Meanwhile, swaps traders continued to cut estimates for borrowing costs as weekly inflation measured by the IPC-S decelerated more than analysts forecast, just one day after the national statistics agency reported that prices had decreased in the month through mid-September.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, dropped 0.03 percentage point to 12.22 percent, the lowest since January. They are down 0.32 percentage point over the past five days, the most since the week ended June 3.

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