Brazil Buys Dollars for Second Day to Ease Currency’s Rally
February 06, 2012, 5:40 PM ESTBy Gabrielle Coppola and Ney Hayashi
Feb. 6 (Bloomberg) -- Brazil’s central bank bought dollars in the foreign-exchange market for a second straight day in a bid to temper the real’s 10-week rally.
The bank paid an average 1.7170 reais each for an unspecified amount of dollars in the spot market, the first such purchase since Sept. 13. Policy makers bought dollars in the forwards market on Feb. 3, the first transaction of that type since July. The real fell 0.5 percent to 1.7257 per U.S. dollar after earlier gaining as much as 0.3 percent.
The central bank is stepping up moves to contain the currency’s strength after companies borrowed $14 billion in overseas debt markets this year, fueling speculation that those dollar inflows will extend the real’s rally. Finance Minister Guido Mantega said Jan. 23 that the government will keep implementing policies aimed at preventing currency gains in a bid to ensure economic growth of at least 4 percent this year.
“The central bank’s intervention may slow the pace of the real’s gain, but it won’t reverse it,” Italo Lombardi, a Latin America economist at Standard Chartered Bank in New York, said by phone. “If we keep seeing strong capital flows to Brazil, the real should keep rising, regardless of the central bank’s actions.”
The purchases come as Colombia’s central bank resumes dollar purchases in a bid to ease the peso’s rally and shore up exports. Banco de la Republica will buy at least $20 million a day in auctions for at least three months starting today, the bank said in a Feb. 3 statement.
Foreign Reserves
Brazil’s real has gained 8.2 percent this year, while the Colombian currency is up 8.5 percent.
The Brazilian central bank’s foreign reserves have almost doubled in the past four years to $355 billion as policy makers intervened to weaken the real.
The Brazilian government raised taxes on overseas loans and foreign-exchange derivatives last year after tripling the so- called IOF tax on foreign investors’ fixed-income purchases to 6 percent in 2010 in a bid to stem the real’s gains.
The real rallied earlier today after an auction for licenses to operate airports in three of Brazil’s busiest travel hubs fetched 24.5 billion reais ($14 billion), or almost five times the minimum, prompting speculation more dollars will come into the country from abroad.
Winners of the auction are expected to invest a total of 16.1 billion reais.
“One way or another, some of that investment should come from the outside,” Reginaldo Galhardo, head of currency trading at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “We are seeing big dollar inflows.”
The yield on the Brazilian interest-rate futures contract due in January 2013 was unchanged at 9.50 percent.
--With assistance from Josue Leonel in Sao Paulo. Editors: David Papadopoulos, Brendan Walsh
To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
