The real advanced to a level stronger than 2 per dollar for the first time in a week after the central bank auctioned currency swaps for a fourth consecutive day to support the exchange rate.
Yields on Brazilian interest-rate futures fell after the biggest one-day increase in almost three years as a columnist for a Sao Paulo-based daily said inflation is more likely to slow to the target of policy makers. The central bank sold 14,000 out of the 40,000 currency swap contracts it offered today, according to a statement.
“The central bank is offering more swaps than the market is absorbing,” said Darwin Dib, chief economist at CM Capital Markets Asset Management, in a phone interview from Sao Paulo. “If investors aren’t buying all the swaps offered in the auction, it’s because they aren’t very convinced that this level of the real is sustainable.”
The real appreciated 2.1 percent to 1.9874 per dollar at the close in Sao Paulo and has risen 1.8 percent since May 18. It touched 2.1062 on May 23, the weakest level since May 2009.
The central bank auctioned 9,000 currency swap contracts due in July and 5,000 due in August. The sales are a reversal from last month’s policy of stepped-up dollar purchases aimed at weakening the currency to help exporters.
“The central bank was very active this week,” said Eduardo Galasini, head of proprietary trading at Banco Banif, in a phone interview from Sao Paulo. “The bank is showing that it’s concerned with the risk that the drop in the real could have an effect on inflation. The bank wants a weaker currency, but not so weak that it increases inflation.”
Reversal of Policy
The real tumbled to a level weaker than 2 per dollar on May 14 for the first time since 2009 after the central bank bought $7.2 billion in the spot market last month, the most since $8.4 billion in March 2011. The currency also weakened as policy makers cut borrowing costs and Europe’s sovereign-debt crisis diminished the prospects for Brazil’s financial assets.
The currency is still the biggest loser against the dollar in 2012 among its 16 most-traded counterparts tracked by Bloomberg, having fallen 6.1 percent.
The yield on the Brazilian interest-rate futures contract due in January 2014 dropped 10 basis points, or 0.1 percentage point, to 8.52 percent, paring its increase this week to 45 basis points. The yield rose 28 basis points yesterday, the most since June 2009.
Brazil’s inflation is more likely to be near the center of its target, or 4.5 percent, in 2012 because of lower oil prices, the government’s reduction of the so-called IPI tax on cars and expected cuts in energy tariffs, Valor Economico columnist Claudia Safatle wrote.
Sao Paulo’s FIPE weekly consumer prices rose 0.41 percent in the four weeks through May 23, according to a report from the Foundation Economics Research Institute in Sao Paulo today. The median forecast of 24 analysts in a Bloomberg News survey was for an increase of 0.44 percent.
Default rates in Brazil returned to levels seen during the 2009 financial crisis as President Dilma Rousseff stepped up measures to boost credit growth and lower borrowing costs.
Policy makers will cut the 9 percent target lending rate to 8.5 percent at a meeting next week, according to the median forecast of 19 analysts in a Bloomberg News survey. The central bank said at its April 17-18 meeting that further cuts to the benchmark rate will be carried out “with parsimony.”
Average default rates in April rose to 5.8 percent, matching the level seen in February and the highest since November 2009, the central bank said in a report distributed today in Brasilia. Outstanding credit rose 1.2 percent last month to 2.1 trillion reais ($1 trillion).
The average rate banks charged for loans fell to 35.3 percent in April as lenders from Banco do Brasil to Itau Unibanco Holding SA (ITUB4) announced cheaper credit lines in response to criticism from Rousseff that they’re not doing enough to reduce loan rates.
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