Bloomberg News

Brazil Real Rises to Week High on Central Bank Inflation Outlook

March 28, 2013

Brazil’s real climbed to a one-week high after the central bank raised its inflation forecasts, spurring speculation that policy makers will allow the currency to strengthen to curb price increases.

The currency appreciated 0.1 percent to 2.0083 per dollar at 10:10 a.m. in Sao Paulo, the strongest level on a closing basis since March 20. The real extended its quarterly advance to 2.2 percent. Swap rates due in January 2014 fell one basis point, or 0.01 percentage point, to 7.73 percent.

“The report shows that the central bank is more concerned with inflation,” Gustavo Rangel, the Latin America chief economist at ING Bank NV, said in a phone interview from London.

The central bank raised its market scenario forecast for inflation in 2013 to 5.8 percent from 4.9 percent and increased its reference scenario inflation forecast to 5.7 percent from 4.8 percent.

The real rose yesterday for the first time in seven days after the central bank sold currency swaps to limit its decline. The intervention was the first since March 11, when the central bank sold reverse currency swaps to weaken the real.

President Dilma Rousseff said yesterday in South Africa that anti-inflation policies shouldn’t sacrifice growth, fueling speculation that the government will try to control price increases by allowing currency appreciation while putting off projected borrowing cost increases. She later reiterated the government’s commitment to curbing inflation.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

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


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