Brazil’s Real Touches a Two-Week Low on Speculation that Central Bank May Ease Support

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Brazil’s Real Touches a Two-Week Low on Speculation that Central Bank May Ease SupportThe Brazilian real declined to its lowest level in two weeks posted its second consecutive weekly decrease after the central bank chief hinted at plans to loosen support for the currency.

The real fell 0.3 percent to 2.2227 against the dollar after central bank’s president Alexandre Tombini made the remarks. This is the lowest level since May 6. The currency has declined 0.4 percent since Monday.

Tombini was quoted by Bloomberg yesterday as saying that demand for currency swaps, which the central bank uses to manage import prices and support the real, has dropped down a notch. Analysts interpreted this to mean that he may scale down the program. Brazil, which started selling the swaps last year, is expected to end the program in June.

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“The central bank has reinforced the idea that it doesn’t intend to renew the program,” said Alfredo Barbutti, a Sao Paulo-based economist at Liquidez DTVM. “Volatility is at a much lower level now.”

The real has rallied 6.2 percent in 2014, making it the biggest gainer of all emerging-market currencies partly due to bets that President Dilma Rousseff will face a runoff after presiding over a declining economy.

Brazil’s central bank traded $198.4 million worth of FX swaps on Friday and rolled over contracts that mature on June 2 valued at $247 million. Swap rates on contracts that mature in January 2017 rose 0.04 percentage point, or four basis points, to 11.85 percent in the interest-rate futures market. This reduced their total decline since last Friday to 20 basis points. 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