Brazil’s Real Falls on Speculation Fed Will Lift Interest Rates

Brazil’s real fell a day after the central bank extended an intervention program to support the currency as signs the U.S. economy is improving bolstered wagers the Federal Reserve will begin raising interest rates.

The real declined 0.1 percent to 2.2770 per dollar in Sao Paulo. Swap rates, a gauge of expectations for interest-rate moves, dropped five basis points, or 0.05 percentage point, to 11.69 percent on contracts maturing in January 2018.

The dollar rose against most developing-nation currencies before data scheduled for release tomorrow that economists predict will show U.S. retail sales grew for a sixth month. There’s about a 79 percent chance the Fed will raise its benchmark rate to at least 0.5 percent by October next year, futures trading shows. Yesterday, Brazil’s central bank started to extend the maturity of 10,000 currency swap contracts to support to the currency, up from 8,000 available in prior auctions.

“Recent numbers regarding the American economy have been showing an improvement, which makes the dollar strengthen relative to its global counterparts,” Cristiano Oliveira, the chief economist at Banco Fibra SA, said in a telephone interview.

The program of currency swaps to support the real and limit import price increases has helped push the currency up 3.7 percent this year after tumbling 13 percent in 2013. Today, the central bank sold swaps worth $198.8 million under the intervention due to expire in December.

The daily intervention program has been crucial to avoid an abrupt devaluation of the real, according to Oliveira. Brazil’s currency dropped 1.1 percent last week as turmoil in Iraq sank demand for emerging-market assets.

Lowest Forecast

Latin America’s biggest economy will expand 1.2 percent in 2015, according to the median forecast in a central bank survey of about 100 analysts published yesterday. That’s the lowest estimate since the start of data collection in January.

The national statistics agency reported last week that the annual increase in consumer prices slowed to 6.5 percent in July from 6.52 percent in the prior month. The official target range is 4.5 percent plus or minus 2 percentage points.

Policy makers held the target lending rate last month at 11 percent for a second straight meeting after nine consecutive increases to curb inflation.