Brazil’s Real Falls Most in Region on Central Bank Intervention

(Bloomberg) -- Brazil’s real is at the mercy of the central bank.

The currency led declines in Latin America on Monday after policy makers intervened to weaken it, offsetting the rise in commodity prices. The real weakened 0.3 percent to 3.3094 per dollar on Monday after the monetary authority sold 10,000 reverse currency swaps, equivalent to buying $500 million in the futures market. The currency dropped as much as 0.6 percent earlier. 

Policy makers revived the intervention program in March as the real headed toward the world’s biggest gains this year, dimming the outlook for exports, and have since sold $45.8 billion of the contracts. The currency has strengthened amid optimism that the government of Acting President Michel Temer can trim the country’s budget deficit, end credit-rating downgrades and restore confidence in its ailing economy.

"The market is paying close attention to the signals the central bank has been giving on the exchange rate," said Juliano Ferreira, a fixed-income strategist at Icap do Brasil CTVM.

Brazil economists have trimmed their estimates for the decline of the real this year and next. The currency will weaken to 3.55 per dollar at the end of 2017, according to a July 8 central bank survey of about 100 analysts. A month ago they expected the real to end the year at 3.81 per dollar. Analysts also see the real at 3.4 per U.S. dollar at the end of this year, from 3.46 the prior week, the survey showed. Since the end of March, analysts have raised their year-end forecast for the real more than any other currency tracked by Bloomberg

The government will target a 2017 budget gap before interest payments of 139 billion reais ($42.1 billion), compared with this year’s target of 170.5 billion reais, Finance Minister Henrique Meirelles said on July 7. The economy will grow next year and tax income will rise, he said.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, ended the day unchanged at 12.69 percent.

--With assistance from Rafael Mendes and Matthew Malinowski To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net, Vinícius Andrade in São Paulo at vandrade3@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Sebastian Boyd