Brazil’s real touched a four-year low, prompting the central bank to intervene for a second straight day as a report showed higher-than-forecast inflation.
The real depreciated 0.3% to 2.1777 per U.S. dollar at 4:17 p.m. in Sao Paulo after falling 0.7% to 2.1856, the weakest intraday level since May 2009. Swap rates on the contract due in January 2015 surged 29 basis points, or 0.29 percentage point, to 10.11%, a 14-month high.
The currency fluctuated after the central bank sold $4.5 billion in foreign-exchange swap contracts in two auctions today, the sixth day of interventions in three weeks. Wholesale, construction and consumer prices rose 0.74% in the 20 days starting May 21, the Getulio Vargas Foundation reported. The median forecast of 13 analysts surveyed by Bloomberg was for a 0.65% increase in the IGP-M index.
“If there’s more currency devaluation, there will be more inflation,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimento in Sao Paulo, said in a telephone interview. “On top of that, the IGP-M shows that wholesale prices are under pressure again.”
Brazil may use all available instruments to contain the real’s volatility including selling dollars in the spot market, central bank president Alexandre Tombini said in an interview with Valor Economico published yesterday. He is due to attend a hearing in the Senate today.
The real rallied on June 13 after the government removed a 1% tax charged on wagers against the dollar, the second step taken this month to loosen capital controls. A week earlier, it eliminated a tax on foreign investors who buy Brazilian bonds in the domestic market.
The central bank raised its target lending rate by 50 basis points on May 29 to 8%, surprising 38 of 57 economists surveyed by Bloomberg, who had expected a second straight increase of 25 basis points. The benchmark was held at a record low 7.25% from October to March to support growth.
The annual pace of consumer price increases accelerated for nine straight months through March to 6.59%, exceeding the upper end of the monetary authority’s target range of 2.50% to 6.50%. The inflation rate eased to 6.49% in April and was 6.50% in May.
The currency has fallen more than 5% since Fed Chairman Ben S. Bernanke said on May 22 that the central bank may taper its stimulus program if the outlook for employment shows “sustainable improvement.” U.S. policy makers begin a two-day meeting today.