November 18, 2013
Gabrielle Coppola & Josue Leonel – Bloomberg, 11/18/2013
The real climbed the most among emerging-market currencies as a planned easing of economic regulations in China, the nation’s biggest trading partner, offset Brazil’s fiscal concern.
The currency appreciated 1.4 percent to 2.2813 per U.S. dollar at 12:46 p.m. in Sao Paulo after declining on Nov. 13 to 2.3341, the weakest level since Sept. 4. Swap rates on contracts maturing in January 2015 fell seven basis points, or 0.07 percentage point, to 10.73 percent.
Brazil sold $496 million of foreign-exchange swaps today as part of a $60 billion intervention program to support the currency and curb import price increases. The real has pared its gain since the program was announced Aug. 22 to 6.6 percent on concern the swelling government budget deficit will lead to a credit rating cut.
November 18, 2013
Francisco Marcelino – Bloomberg, 11/17/2013
Brazil’s central bank President Alexandre Tombini didn’t see any shortage of foreign currency in the country’s spot market in the week the real declined to a two-month low.
The nation and other emerging markets face a “sell-off” because of “interest rate normalization” in advanced economies, Tombini said in a speech delivered in Santiago on the evening of Nov. 15 and published on the Central Bank of Brazil’s website yesterday. The world’s second-biggest emerging economy after China is “providing currency hedge for the private sector” with an $100-billion intervention program for 2013, Tombini said.
Brazil’s real has fallen 5 percent since Oct. 31, when the government said its budget deficit widened to the largest in almost four years on concern about a credit rating downgrade. On Nov. 13, the currency dropped to 2.3341 per dollar, the weakest since Sept. 4.
November 1, 2013
Dawn Kissi – Open Markets, 10/31/2013
An impressive amount for one of the world’s largest emerging markets, yes. However many in the know and those with knowledge of how Brazil’s Central Bank thinks and operates, sees the market intervention as business as usual for BACEN.
Since early 2013, Brazil’s Central bank has been offering approximately the same amount of USD daily intervention swaps to the market on a regular basis, according to Brazil economists and analysts. The key difference with the action taken in August is that the Bank had actually been intervening in the markets via larger auctions, less frequently and on unpredictable dates. In essence, by shifting to a regular schedule and making their plans public, BACEN has now reassured the market, as well as helped to stabilize any expectations, particularly during days of reduced liquidity, explains Paulo Vieira da Cunha, Former Deputy Governor of the Central Bank of Brazil.
According to Vieira da Cunha, “the Central Bank continued to accumulate FX reserves even as it was offering this massive volume of DI/Swaps.” Overwhelmingly, the majority of FX transactions handled in Brazil are done through the futures market, which trades at BM&F Bovespa. The country’s cash (pronto) market is a small one and often illiquid.
October 31, 2013
Paulo Trevisani & Jeffrey T. Lews – The Wall Street Journal, 10/31/2013
Brazil’s central bank finds itself caught in a quandary: After launching a new program to prevent the national currency from depreciating too abruptly during a volatile summer, officials must decide whether to abandon or alter the program now that the currency is gaining value.
The central bank, like many of its counterparts in emerging markets, has struggled for months to cope with the global market turmoil caused by the twists and turns of U.S. monetary and fiscal policy.
Its task is complicated because Brazil’s inflation, at just under 6%, is running close to the top end of the central bank’s target range. A weaker currency can add to inflationary pressures, but too strong a currency can harm the nations’ exports.
October 25, 2013
Kevin Dugan, Ye Xie & Blake Schmidt – Bloomberg, 10/25/2013
Individual investors are buying record amounts of notes betting that Brazil’s real will continue its world-beating advance amid speculation the Federal Reserve will keep pumping money into the global economy into 2014.
The demand runs counter to the outlook from professional strategists, who predict a 5 percent drop in the real by the end of March. Goldman Sachs Group Inc. and HSBC Holdings Plc (HSBA) led $73.5 million of real-linked U.S. structured-note sales this year, surpassing the $66.5 million issued in 2011 when the real strengthened to a 12-year high, data compiled by Bloomberg show.
While Brazilian officials have sent mixed messages about continuing the market intervention that triggered the real’s 11 percent rally over the past two months, the currency is being spurred by the $85 billion that the Fed is pumping into the economy every month, some of which is flowing out of the U.S.
October 24, 2013
Blake Schmidt & Josue Leonel – Bloomberg, 10/24/2013
Brazil’s real fell on speculation the central bank will limit rollovers of foreign-exchange swaps after the currency posted the world’s biggest two-month rally.
The real depreciated 0.3 percent to 2.1976 per U.S. dollar at 10:05 a.m. in Sao Paulo, the weakest level on a closing basis since Oct. 9. Swap rates on contracts maturing in January 2015 were unchanged at 10.49 percent.
“The central bank doesn’t want the real to gain further,” Newton Rosa, the chief economist at Sul America Investimentos in Sao Paulo, said in a phone interview.
October 23, 2013
Brazilian stocks snapped a three-day rally on Wednesday on concerns over tighter monetary policy in China, Brazil’s top trading partner.
Mexico’s IPC index fell its most in over a week, while Chile’s bourse dropped for the first session in four.
A policy adviser to the People’s Bank of China told Reuters on Tuesday that the authority may tighten cash conditions in the financial system to address inflation risks, which could also sap economic growth in a key market for Latin American iron ore, soybeans, oil and copper.
October 10, 2013
Merco Press, 10/10/2013
The central bank made no changes to the statement accompanying its decision, suggesting it could maintain the current pace of rate rises at its next meeting, in November.
Before the meeting, most economists believed the Selic would end the year at 9.75%, according to a weekly central bank poll released on Monday.
However, a growing number of economists have started to bet that interest rates could climb back into double digits next year to ensure inflation expectations for 2014 and 2015 fall towards 4.5 percent, the centre of the government’s target.
October 4, 2013
Ye Xie & Blake Schmidt – Bloomberg, 10/04/2013
For the world’s biggest foreign-exchange trader, the Brazilian real’s 11 percent rally from a 4 1/2-year low is just another reason to sell one of the “bad apples” of emerging-market currencies.
Deutsche Bank AG says a possible credit-rating downgrade and Brazil’s biggest current-account deficit in 11 years will cause the real to reverse recent gains. Speculators agree, with bearish bets on the currency doubling in a month on Latin America’s main stock exchange to a record $20 billion this week.
“It’s a good time to put the trade back on,” Daniel Brehon, a currency strategist at Deutsche Bank in New York, said in an Oct. 2 phone interview. “Brazil is the most vulnerable in the region.”
September 24, 2013
“The program is adequate, it’s working well,” Tombini told reporters and analysts in a conference call. There is “no news whatsoever from our side on this issue.”
The Real has gained 10.6% since the central bank said on Aug. 22 it would offer 3 billion dollars in swap and credit line auctions per week. After the Federal Reserve surprised analysts last week by deciding against tapering U.S. stimulus, Finance Minister Guido Mantega said the central bank could curtail its dollar auction program.
Tombini reiterated the central bank has to remain especially vigilant to prevent a weaker Real from fuelling inflation through more expensive imports. The Real has weakened 6.9% this year.