Brazil’s real rose to a one-month high two days after the central bank eased reserve requirements for bets against the dollar on concern the local currency’s decline this year would cause inflation to accelerate.
The real appreciated 0.5 percent to 2.0623 per U.S. dollar at 12:23 p.m. in Sao Paulo, the highest level on a closing basis since Nov. 13. Swap rates on contracts due in January 2015 increased four basis points, or 0.04 percentage point, to 7.73 percent, erasing a drop of three basis points.
“The central bank is concerned that the exchange rate could increase inflationary risks,” Roberto Padovani, the chief economist at Votorantim Corretora in Sao Paulo, said in a telephone interview.
Financial institutions are required to collect reserve requirements on short dollar positions above $3 billion starting today instead of the previous $1 billion level, the central bank announced Dec. 18. A short is a bet an asset will lose value. Swap rates climbed after Finance Minister Guido Mantega said yesterday Brazil will allow gasoline prices to rise in 2013.
The central bank has been letting the real strengthen on concern further depreciation will create inflationary pressure by making imports more expensive, Padovani said. The real has dropped 9.5 percent this year, the worst performance among 16 major currencies tracked by Bloomberg.
Policy makers have swung this year between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening beyond 2 per dollar. The central bank has sold $3.7 billion in currency swaps in November and December.
The central bank auctioned dollar credit lines for a fourth straight day to stimulate liquidity. The credit lines help boost the supply of U.S. currency as Brazilian companies send dollars abroad to balance their book at year-end.
December was headed for the biggest net outflow of dollars in two years as the central bank reported $4.2 billion this month through Dec. 14, compared with $4.3 billion in June 2010.
“In past years there were more inflows for investments in assets, and now there is less coming in with lower interest rates and less interest in the stock exchange,” said Ures Folchini, the head of fixed income at Banco WestLB do Brasil, in a phone interview from Sao Paulo. “And there’s a bit of that story of Mexico being attractive, which has led to less resources flowing to Brazil.”
Swap rates erased an earlier drop on concern the central bank’s quarterly inflation report today didn’t take into account gasoline price increases next year.
Inflation will slow to 4.8 percent in 2013 under the reference scenario in which the target lending rate holds steady, compared with a 4.9 percent forecast in the September report, the central bank said today. It cut the 2012 growth forecast to 1 percent from 1.6 percent in its September quarterly report.
Finance Minister Guido Mantega told reporters in Brasilia yesterday that Brazil will “certainly” raise gasoline prices in 2013 and state-controlled Petroleo Brasileiro SA will announce the increase at the right time. Mantega is the company’s chairman.
“If we throw gas price hikes into the central bank’s projection, we would have 2013 inflation near 5.5 percent,” Fernando Genta, the chief economist at MCM Consultores in Sao Paulo, said in a phone interview.
Policy makers left the target lending rate at a record low 7.25 percent last month following 10 straight reductions. Traders use interest-rate swaps to bet on the direction of borrowing costs.
Brazil’s annual rate of consumer price increases as measured by the benchmark IPCA index has exceeded the 4.5 percent midpoint of the central bank’s target range for 27 consecutive months. Annual inflation unexpectedly accelerated to 5.53 percent in November from 5.45 percent the month before, the statistics agency reported Dec. 7.