The Brazilian real rose to its highest level in six weeks on bets the central bank may increase interest rates by an extra half-percentage point, which would attract foreign investors to its local assets such as stocks and bonds.
The real jumped 0.8 percent to trade at 2.5933 per U.S. dollar as of 2:15 p.m. Sao Paulo time, the strongest close since Dec. 5. Swap rates, which measure forecasts of swings in interest rates, fell 0.03 percentage points to 12.60 percent for the contract that matures in January 2016.
Economists surveyed by Bloomberg News expect policy makers to increase the benchmark interest rate by Wednesday’s close to 12.25 percent, the highest level in three years, from 11.75 percent. A central bank poll of economists released on Monday showed that inflation will increase to 6.67 percent this year, exceeding the target range’s upper limit of 6.5 percent.
“The rate hike is necessary at this moment considering the inflation concern and brings back credibility to the Brazilian economy,” Camila Abdelmalack, a Sao Paulo-based economist at CM Capital Markets, told Bloomberg News. “It adds attractiveness to Brazilian assets including the real in the short term.”
The real also rallied, following a trend observed by other emerging-economy currencies, following a revelation by two policy makers that European Central Bank President Mario Draghi is in favor of asset purchases totaling 50 billion euros ($58 billion) per month till the end of next year.
The Brazilian currency appreciated yesterday after Finance Minister Joaquim Levy announced that increased taxes on imports, cosmetics, fuel and credit would boost revenue by at least 20 billion reais ($7.6 billion).
In order to boost the real and curb import price surges, the central bank offloaded currency swaps worth $98.3 million and rolled over contracts valued at $490.2 million today. 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 firstname.lastname@example.org