The Brazilian real plunged against the dollar after data showed that foreign funds pulled out their monies from the country in the last week of March.
The real fell 0.3 percent to 2.2689 per dollar at the Sao Paulo’s close. Swap rates on contracts that mature in January 2015 fell 0.02 percentage points, or two basis points, to 11.12 percent.
The central bank released a report on Wednesday that showed that net investment outflows totalled $2.74 billion in the week ending March 28, reducing March’s capital inflows to $2.74 billion.
According to Deives Ribeiro, a Sao Paulo-based currency manager at Fair Corretora de Cambio e Valores, the fact that the government is slow to increase interest rates may damp foreign inflows.
“The current level of the currency is supported basically by inflows seeking to benefit from high interest rates,” Ribeiro told Bloomberg. “Once those flows cease, it is a natural trend for the currency to decline.”
The central bank is widely expected to increase the benchmark interest rate by 0.25 percent to 11percent in a meeting held on Wednesday, according to a Bloomberg survey of 57 economists. This will be the second straight 25 basis point hike after six consecutive 50 basis-point increases.
Brazil’s Finance Minister Guido Mantega was quoted in a local radio station interview as saying that the government will meet the GDP growth rate of 1.9 percent in 2014 and that inflation will remain under control.
Mantega added that the current exchange rate of 1 dollar for 2.25 real wouldn’t have any effect on inflation, and that foreign inflows to fixed-income assets would increase if the benchmark interest rate is increased.
To contact the reporter of this story; Jonathan Millet at email@example.com