Brazilian Real Slides on Speculation

by on October 24, 2013 3:12 am BST

The Brazilian real slides on speculation that the central bank will limit the rollover of currency swaps, which has contributed to the biggest two-month rally.

After falling eight-tenths of a percent to 2.1905  reals per USD, the swaps rates on the January contracts dropped four bps to 10.49 percent.

Brazil’s real fell on speculation the central bank will limit the rollover of currency swaps that have supported the world’s biggest two-month rally. “The bank is rolling over little by little, just $1 billion at a time,” said Daniel Mameri, a currency trader at Ativa SA.

The Brazilian central bank extended the maturities on $987 million foreign-exchange swaps today, while rolling of roughly the same amount yesterday. It is unclear if the central bank will also roll the rest of the $8.9 billion of contracts that mature on November 1.

While the central bank extended maturities on $987 million of foreign-exchange swaps today after rolling over a similar amount yesterday, it didn’t say whether it would do so for the rest of the $8.9 billion of contracts maturing Nov. 1.

Brazil implemented a $60 billion program of swaps and credit lines to keep the real afloat and deflect rising import prices. The real has since gained 11 percent. Unfortunately, the rally has boosted export prices and making Brazilian manufacturing less alluring.

The central bank president, Alexandre Tombini, said in a statement that the currency program is successful, and policy makers voted unanimously on October 9 to increase the target lending rate from nine percent to 9.5 percent.

Although inflation being a concern in Brazil, the annual inflation has tapered off to 5.75 percent through mid-October. This is a full percent higher than the central bank’s forecast target. According to a central bank survey, economists raised the consumer-price forecast modestly to 5.83 percent from 5.81 percent.