Brazil’s Real Surges after Interest Rates Increase

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Brazil’s Real Surges after Interest Rates IncreaseThe Brazil’s real jumped after the central bank unexpectedly raised interest rates, indicating policy makers are keen on taming inflation in the country.

The real surged 1.7 percent to trade at 2.4214 per U.S. dollar as of 9:20 a.m. Sao Paulo time. Swap rates, which measure the expectations for swings in interest rates, rose 35 basis points to 12.18 percent for the contract that matures in January 2016.

The move was a massive surprise,” Benoit Anne, a London-based head of emerging-markets strategy at Societe Generale, told Bloomberg News. “This will prompt market participants to rethink their monetary policy outlook, with more hikes in the pipeline.”

Meanwhile, the India’s rupee touched a two-week low on speculation that funds will move out of emerging markets as the Federal Reserve ends its stimulus program and raises interest rates.

Investors believe the Fed may raise borrowing costs sooner than expected after policy makers made remarks about “solid job gains” through a statement published at the end of its two-day policy meeting on Wednesday. However, the central bank reiterated its stance to retain borrowing costs for some time.

The rupee fell 0.2 percent to trade at 61.4550 per dollar in Mumbai after earlier touching 61.5550, its lowest level since Oct. 17. Futures prices showed that the bets that the Fed’s target interest rate will be increased by Oct. 2015 rose to 75 percent, up from last week’s 68 percent.

The rupee’s one-month implied volatility, which measures the expected swings in the exchange rate that is used to set prices to options, jumped three basis points to 6.27 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com