Brazils’ Real Surges After Central Bank Extends Foreign-Exchange Swap Auction

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Brazils’ Real Surges After Central Bank Extends Foreign-Exchange Swap AuctionBrazil’s real led the gains in emerging market currencies after the central bank continued with its intervention program aimed at propping up the currency.

The real accelerated 0.5 percent to trade at 2.2357 per U.S. dollar in late morning trading in Sao Paulo, the strongest spike among the 24 emerging-market currencies monitored by Bloomberg.

Swap rates linked to contracts that mature in January 2017 rose 0.04 percentage point, or four basis points, to 11.56 percent after touching the lowest point in seven months last week.

The real has benefited immensely from the forex swap sales, which have also helped control increase in import prices. These interventions, together with bets that incumbent President Dilma Rousseff may face a runoff in presidential elections due to the sluggish economic performance under her watch, have seen the real advance 5.6 percent this year.

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Traders had expected the government to roll back the program after the central bank chief Alexandre Tombini was quoted by local media on May 22 as saying he observed a “certain drop” in demand for the swaps.

“The measure is positive for the currency and shows the central bank intends to keep supporting it,” Silvio Campos Neto, a Sao Paulo-based economist at Tendencias Consultoria Integrada told Bloomberg. “Now the market is waiting for details regarding the continuation of the program.”

Brazil auctioned swaps valued at $199 million on Monday under the buying program that is set to end this month. The central bank announced via its website on Friday that it will provide more information about the program’s extension later.

Consumer prices in Brazil rose by 6.37 percent in the year through May, the most in nearly a year and close to the official upper ceiling of 6.5 percent, reported the national statistics agency on Friday. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com