Brazil cen­tral bank moves to weaken cur­rency

The Pak Banker - - COMPANIES/BOSS -

Brazil's real dropped ahead of a cen­tral bank in­ter­ven­tion to weaken the cur­rency. The cen­tral bank will of­fer up to 20,000 for­eign-ex­change re­verse swap con­tracts on Wed­nes­day, equiv­a­lent to buy­ing dol­lars in the fu­tures mar­ket. It will also re­duce rollover auc­tions to 2,500 con­tracts a day from 3,600 pre­vi­ously. The real lost 1.6 per­cent to 3.6393 per dol­lar at 10 a.m. in Sao Paulo.

The bank's move re­v­erses its pre­vi­ous pol­icy of us­ing the swaps to help bol­ster the real. The cen­tral bank changed tac­tics af­ter the real climbed 9.4 per­cent against the dol­lar this year through Fri­day, more than any other ma­jor cur­rency in the world, as the drive to im­peach Pres­i­dent Dilma Rouss­eff gained mo­men­tum.

"In­vestors are get­ting con­vinced the cen­tral bank in­tends to tackle the ex­ag­ger­ated ap­pre­ci­a­tion of the real, that the move in re­cent weeks has a limit,"said Camila Ab­del­malack, the chief econ­o­mist of bro­ker­age CM Cap­i­tal Mar­kets in Sao Paulo. "The strong ap­pre­ci­a­tion of the dol­lar is also weigh­ing on the real and political de­vel­op­ments in Brazil should keep the cur­rency volatile."

Traders dumped higher-yield­ing cur­ren­cies world­wide af­ter Chicago Fed Pres­i­dent Charles Evans said two rate hikes this year wouldn't be un­rea­son­able, join­ing other of­fi­cials who have said this week they ex­pect to raise rates more ag­gres­sively than traders had been pric­ing in. The dol­lar's ap­pre­ci­a­tion weak­ened emerg­ing­mar­ket cur­ren­cies.

Brazil­ian swap rates on the con­tract ma­tur­ing in Jan­uary 2017, a gauge of ex­pec­ta­tions for in­ter­est rates, dropped 0.03 per­cent­age point to 13.68 per­cent af­ter in­fla­tion slowed more than ex­pected in the month through mid-March.

In­fla­tion, as mea­sured by the IPCA-15 in­dex, de­cel­er­ated to 0.43 per­cent from 1.42 per­cent a month ear­lier, the na­tional sta­tis­tics agency said Wed­nes­day. That com­pares with the me­dian es­ti­mate from 37 an­a­lysts sur­veyed by Bloomberg for a 0.54 per­cent in­crease in con- sumer prices. An­nual in­fla­tion slowed to 9.95 per­cent from 10.84 per­cent.

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