Brazil’s real touched a nine-month high as Finance Minister Guido Mantega signaled that the government will allow the currency to appreciate another 5% before the central bank intervened to stem gains.
The currency slid 0.3% to 1.9717 per dollar at 12:49 p.m. in Sao Paulo after rallying 0.8% to 1.9511, the strongest intraday level since May 11. It has gained 1% this week, the most among 25 emerging-market currencies tracked by Bloomberg, on speculation policy makers will let the currency strengthen to contain inflation. Swap rates due in January 2015 climbed five basis points, or 0.05 percentage point, to 8.24% today.
The government will curb the currency if it reaches 1.85 per dollar, Mantega said in an interview with Reuters. The real erased its advance after the central bank intervened by offering reverse currency swaps for the first time since October.
“Mantega mentioned 1.85 as a potential new ceiling but interventions today signal that appreciation will be managed gradually in line with rising inflationary concerns,” Bernd Berg, an emerging-markets strategist at Credit Suisse Group AG, said by instant electronic message.
The currency rose yesterday after a central bank board member said in a phone interview with Bloomberg News that inflation is high, spurring speculation that policy makers will let the currency strengthen to contain consumer prices.
The government may increase taxes on foreign inflows or buy dollars to block speculation, Mantega said in the interview with Reuters. Exchange-rate policy hasn’t changed, and Brazil won’t allow speculative appreciation of the real, the Finance Ministry said in an e-mailed statement to Bloomberg News. The central bank auctioned $502 million of reverse currency swaps, selling 10,000 of 37,000 offered.
“Mantega gave a new ceiling for the market to test,” Reginaldo Galhardo, a currency trader at Treviso Corretora de Cambio in Sao Paulo, said in a phone interview. The level of “1.85 per dollar has become the new uncrossable limit, with the ceiling for central bank tolerance changing once again.”
The real rallied to a level stronger than 2 per U.S. dollar on Jan. 28 for the first time since July after the central bank renewed $1.85 billion of currency swaps about to expire, refraining from buying dollars to settle the contracts. On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that
Policy makers swung in 2012 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.
Swap rates climbed yesterday after the government reported that consumer prices increased in January at the fastest pace in almost eight years, adding to bets that the central bank will increase borrowing costs.
The government reported that its main consumer price index, known as IPCA, rose 0.86% in January from a month earlier, the most since April 2005. The median forecast of 41 economists surveyed by Bloomberg was for a 0.83% advance. Annual inflation accelerated to 6.15%, faster than the 4.5% midpoint of the central bank’s target range for a 29th month.
Swap rates rose today, erasing earlier decreases, after the Getulio Vargas Foundation reported that its IPC-S index of prices in Brazil’s seven biggest cities rose 0.88% in the month ended Feb. 7, higher than the 0.85% median forecast of 14 analysts surveyed by Bloomberg.
Central bank President Alexandre Tombini said in an interview with GloboNews that annual inflation won’t exceed the 6.5% upper limit of the central bank’s target range in the first half of 2013.
The central bank held the target lending rate at a record low 7.25% for a second straight time after the slowest two years of economic expansion in a decade. Policy makers have cut benchmark borrowing costs by 5.25 percentage points since August 2011, the most aggressive cuts among Group of 20 nations.