Brazil central bank moves to weaken currency
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.