The real dropped to a four-year low as U.S. Federal Reserve minutes signaled broad support for a plan to curtail a stimulus program, prompting Brazil’s central bank to intervene in the currency market.
Swap rates climbed after consumer prices rose more than forecast, reviving speculation that the central bank will quicken the pace of increases in borrowing costs. Brazil’s central bank called an auction of currency swaps to stem the real’s decline, which is undermining policy makers’ goal of curbing inflation while supporting growth.
“We’re seeing a flight to quality now, and Brazil is suffering a little more than other currencies,” Pablo Spyer, a director at Mirae Asset Management in Sao Paulo, said in a telephone interview.
The real slid 1.9% to 2.4393 per U.S. dollar at 4:20 p.m. in Sao Paulo, the weakest on a closing basis since March 2009. The currency has fallen 16% in the past three months, the most among emerging-market currencies tracked by Bloomberg. Swap rates on contracts due in January 2016 rose 27 basis points, or 0.27 percentage point, to 11.42%.
U.S. central bank policy makers were “broadly comfortable” with Fed Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, according to minutes of their last meeting, published today.
The real’s decline to a four-year low last week prompted Brazil’s central bank to announce that it will roll over more than $5 billion in currency swap contracts to limit declines. It sold $988 million in a rollover today and plans another rollover auction tomorrow.
Brazilian swap rates climbed after the the national statistics agency reported that the IPCA-15 consumer price index rose at annual pace of 6.15% in the month through mid- August, faster than the 6.14% median forecast of economists surveyed by Bloomberg.
“While the data was close to estimates, it was still bad and shows that inflation remains a concern,” Cristiano Oliveira, the chief economist at Banco Fibra SA, said in a phone interview from Sao Paulo.
The central bank has raised its benchmark interest rate more than any major economy this year, bringing it up 1.25 percentage points from a record low 7.25% in April.
Swap rates on the January 2016 contracts tumbled 38 basis points yesterday, the biggest drop since June, after central bank president Alexandre Tombini said on Aug. 19 that traders had taken wagers on increases in borrowing costs too far. The swap rates had risen more than 1 percentage point this month to 11.53%, the highest level since September 2011.
“The recent movement seen in interest rates in the market has incorporated excessive premium,” Tombini said in a statement, which also cautioned investors against one-way bets in the currency market.
Economists surveyed by the central bank forecast Brazil’s year-end target lending rate at 9.25% and economic growth of 2.21% in 2013, which would mark the third straight annual expansion below 3%. Inflation will close the year at 5.74%, according to the survey.