Brazil real gains as U.S. stimulus outlook supports intervention

Brazil’s real rose to a seven-week high on speculation the next U.S. Federal Reserve chairman will maintain stimulus for a longer period, supporting efforts by the Latin American nation’s central bank to bolster the currency.

The real climbed 0.8% to 2.2613 per U.S. dollar at 10:50 a.m. in Sao Paulo, the strongest since July 25 on a closing basis. Swap rates on the contract due in January 2015 declined eight basis points, or 0.08 percentage point, to 10.38%.

Brazil’s currency rallied along with most emerging-market counterparts after Lawrence Summers withdrew his candidacy as Fed chairman. Brazil’s central bank sold $497 million of foreign-exchange swaps and prepared for a rollover auction to support the currency.

“The central bank is maintaining a firm hand on the currency,” Roberto Padovani, the chief economist at Votorantim Ctvm, said by phone from Sao Paulo. “Today, the global environment is risk-on, and that favors foreign inflows coming back to emerging countries.”

The real has gained 7.8% since Aug. 22, when Brazil announced its intervention program to stem declines as part of an effort to rein in inflation. The gains are the biggest among major emerging-market currencies tracked by Bloomberg.

Swap Rates

Summers, a former Treasury secretary, would have tightened Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. Yields on the 10-year U.S. Treasury fell 10 basis points today to 2.78%, a two-week low.

Swap rates fell as a stronger real and speculation the U.S. will continue its bond purchasing program overshadowed a report showing Brazilian inflation accelerated more than forecast in the past month.

The Getulio Vargas Foundation reported today that its IGP-10 inflation index, which monitors wholesale, construction and consumer prices, increased 1.05% in the month ended Sept. 10, more than the 0.91% forecast of 25 economists surveyed by Bloomberg and the prior 0.15% increase.

Brazil’s gross domestic product will expand 2.40% this year, compared with the previous week’s forecast of 2.35%, according to the Sept. 13 central bank survey of about 100 analysts published today. Growth will slow to 2.22% next year, down from last week’s estimate of 2.28%.

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