Brazilian real was the biggest gainer among the emerging nations’ currencies as speculation that the central bank will raise interest rates attracted inflows from investors whose countries have borrowing rates hovering near zero.
The real gained 0.9 percent to stand at 2.3279 a U.S. dollar, its biggest spike since March 5. The swap rates on contracts that mature in January 2018 surged 0.04 percent to 13.04 percent.
“The resilience of the real reflects actions recently done by the central bank, such as rate hikes and swap auctions,” Carlos Kawall, a Sao Paulo-based chief economist at Banco J. Safra in an interview with Bloomberg.
The country sold currency swaps worth $198 million on Thursday in accordance with a program launched last December that limits import price surges and supports the real. Brazil’s central bank also conducted an auction that extended maturities on swaps that are due in April, investing over $492.2 million.
To keep inflation under check, the government has so far raised the target rate 75 basis point since January to 10.75 percent, the biggest such increase in major emerging markets after Turkey.
The government aims to bring inflation to 4.5 percent, a fact reaffirmed on Tuesday by central bank President Alexandre Tombini. Data released by the government last week shows that consumer prices have risen 5.68 percent over the past year.
Health checks carried on Brazil’s lenders showed that most of them have mechanisms to absorb shocks, according to a report released on Thursday by the central bank. Such shocks include exchange rates, interest rates, and real estate price and default shocks.
The real plunged on Wednesday, as with other major currencies, after the U.S. Federal Reserve hinted at possible interest rate rise.
To contact the reporter of this story: Yashu Gola at firstname.lastname@example.org