Brazilian currency rises from four-year low after tax eliminated

‘Fighting Inflation’

“We increased rates in April and May, and we are in the process of fighting inflation without giving it any relief at the moment,” central bank president Alexandre Tombini said yesterday in an interview on Record television. “We will bring the inflation rate lower.”

The real pared its decline over the past three months to 8.2% today, still the worst performance among 16 major currencies tracked by Bloomberg.

While the derivatives-tax cut will provide “some relief” for the real, it is still being hurt by waning confidence in the government’s policies, Eduardo Suarez, a Latin America currency strategist at Bank of Nova Scotia in Toronto, said in an e- mailed note to clients today.

Standard & Poor’s lowered the outlook on Brazil’s BBB rating to negative last week on concern that sluggish growth and weakening fiscal accounts will reduce the country’s ability to manage an external shock. President Dilma Rousseff said at an event yesterday in Brasilia that inflation and fiscal accounts are under control.

Retail Sales

Retail sales increased 0.5% in April from a month earlier after a contraction of 0.1% in March, the national statistics agency reported today. The median forecast of 28 economists surveyed by Bloomberg was for an increase of 1.2%.

The real’s three-month implied volatility stayed today at an 11-month high of 14%. That compares with 9.9% before Fed Chairman Ben S. Bernanke said the central bank may scale back stimulus efforts if the employment outlook shows sustainable improvement.

“There’s volatility in currency markets at the moment purely because of uncertainty, with a lot of talk that quantitative easing will be tapered,” Davis said. “But I don’t think they’re going to taper just yet because nothing has changed in terms of data. There’s no need for them to stop just yet and once the market digests that, money that’s getting taken out of emerging markets will be put back in.”

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