Brazil’s real advanced the most among emerging-market currencies on speculation the central bank’s intervention will help prevent it from falling further after last week’s drop.
The real appreciated 1.3% to 2.3573 per U.S. dollar at the close of trading in Sao Paulo, the most among 24 developing-nation counterparts tracked by Bloomberg. Swap rates on contracts maturing in January 2017 fell four basis points, or 0.04 percentage point, to 12.31%.
Most emerging-market currencies rallied today as investors exited bets on further increases in the dollar before year-end. The real tumbled 2.4% last week as the Federal Reserve reduced monthly bond purchases that kept Treasury yields low and buoyed demand for emerging-market assets.
“It would be natural that the dollar adjusts in Brazil,” Jose Carlos Amado, a currency trader at Renascenca Dtvm in Sao Paulo, said in a telephone interview. “Knowing that the central bank is paying attention, the market could back down a bit.”
Economists covering Brazil raised their 2014 inflation forecast to 5.97% from 5.95%, according to the median of about 100 estimates in a weekly central bank survey published today. They cut their 2013 year-end outlook for the real to 2.34 per dollar from 2.33.
Brazil’s currency has fallen 6% in the fourth quarter, the most among 16 major dollar counterparts, on concern fiscal deterioration will lead to a reduced credit rating and amid speculation that the tapering of Fed stimulus will sink demand for the nation’s assets.
Standard & Poor’s and Moody’s Investors Service lowered their outlooks this year on Brazil’s credit rating, which both have at two levels above junk. The government’s budget deficit as a percentage of gross domestic product swelled to 3.4% in October, the widest since 2009.
The central bank said Dec. 18 it plans next year to reduce the intervention program announced in August to support the currency and limit import price increases.
Brazil will auction $200 million of foreign-exchange swaps on trading days from January through at least the end of June, down from offerings of $500 million four days a week this year. The central bank sold swaps worth $496 million today.