Bloomberg News

Brazilian Real Advances on Europe Optimism, Trade Inflow Bets

January 24, 2012

Jan. 23 (Bloomberg) -- Brazil’s real gained for a fourth day as investors wagered European leaders will make progress in talks to tame the region’s debt crisis at a meeting today and a government report will show inflows into Latin America’s largest economy grew last week.

The real advanced 0.2 percent to 1.7520 per U.S. dollar at 11:49 a.m. in Sao Paulo, from 1.7552 on Jan. 20. The yield on the Brazilian interest-rate futures contract due in January 2013 rose two basis points, or 0.02 percentage point, to 9.84 percent after earlier falling as much as four basis points.

European officials are crafting a long-term plan to tackle the region’s debt crisis in Brussels as Greece and private bondholders said they had made progress in negotiating a debt swap during talks over the weekend in Athens. Investors also bought the real on wagers the government’s weekly trade report, to be released later today, will show an increase in inflows during the past week, said Jose Carlos Amado, currency trader at Renasenca DTVM Ltda. in Sao Paulo.

“The dollar is on a downward trend with this respite in Europe,” Amado said in a telephone interview. “There’s a lot of talk about inflows, particularly into equities.”

The real underperformed most major and emerging-market currencies, a signal that investors are still wary the central bank may intervene to cap the currency’s appreciation, Amado said.

“The market is still being cautious and the dollar could react on any comment about intervention from the central bank,” Amado said.

Consumer Inflation

Consumer prices, as measured by the IPC-S index, rose 0.93 percent in the month ended Jan. 22, compared with a 0.97 percent increase in the prior period, the Rio de Janeiro-based Getulio Vargas Foundation said today. That compares with a median estimate of 1.02 percent among 12 economists surveyed by Bloomberg.

“The IPC-S showed a reversal in the trend” of faster inflation, Luis Octavio de Souza Leal, chief economist at Banco ABC Brasil SA, said by phone from Sao Paulo. “There’s a positive expectation that we’re going to see budget cuts this week.”

President Dilma Rousseff may announce budget cuts as soon as today, Sao Paulo-based newspaper Estado de S. Paulo reported, without saying where it obtained the information.

Rousseff may announce as much as 70 billion reais ($40 billion) in cuts to the 2012 budget, the newspaper reported.

An official at the Finance Ministry in Brasilia, who asked not to be identified in accordance with government policy, declined to comment on the report.

“Any number above 60 billion reais, the market will see that as more space to cut rates,” Souza Leal said.

Economic Outlook

Economists covering Brazil cut their forecast for inflation this year for an eighth week, even after the central bank lowered its benchmark lending half a percentage point for a fourth straight meeting last week.

Consumer prices will increase 5.29 percent this year, according to the median forecast in a Jan. 20 central bank survey of about 100 economists published today, down from an estimate of 5.30 percent the previous week.

Policy makers brought the benchmark rate to 10.5 percent last week as part of efforts to shield the second-largest emerging market from Europe’s debt crisis.

Economists expect policy makers to cut the benchmark rate to 9.5 percent by the end of the year, and to raise it back to 10.25 percent in 2013, the survey found.

--With assistance from Matthew Bristow in Brasilia. Editors: Brendan Walsh, Richard Richtmyer

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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