Real Faces High Decline

Real, the major currency of Brazil has gone down to a 2-week low as Guido Mantega, the Finance Minister of the country has stated that there is no requirement for additional measurements in an attempt to intervene in the market. Real has declined by 0.6% on today and it is currently priced at 1.9743 per USD. This marks its weakest close since 6th February. Swap rates for the contracts which are due in January, 2014 went down by 4 basis points and are at 7.65% currently. These dropped as economists are speculating that the Central Bank will increase borrowing costs for containing inflation.

After suffering the decline of today, Real’s gain in 2013 has now been trimmed to 3.9%, which is still the best among the major currencies. In 2012, Real slumped by 9% after the intervention of Dilma Rousseff’s Government to limit the gains and protect the Brazilian domestic industry.

Joao Paulo de Gracia Correa, the Currency Manager of Correparti Corretora stated Mantega’s comments have played an instrumental role in bringing Real down. Joao added that Mantega is actually stressing that the rate of 2 Real per Dollar is good for the Brazilian economy. Incidentally, Mantega also commented that the Government will not be allowing Real to over appreciate so that the consumer prices can be properly controlled. Incidentally, if the currency becomes strong, the imports go cheaper taming the inflation down.

As measured by the IPCA-15 Index, the inflation for the current month is at 0.62%, whereas, in January, it was 0.88%. The official report is to be published by the National Statistics Agency on this week.

The Senior Economist of Porto Seguro Investimentos, Rafael Laurindo stated that the basic scenario for the country is still stable interest rates until the end of 2013. Rafael added that the overall global economic picture is pretty complex now.

During its meeting held between 15th and 16th January, the Central Bank of Brazil officials called for keeping the borrowing costs at the current level for as long as possible. According to them, this is the best way of cooling down the inflation without harming the economic growth of the country.

Alexandre Tombini, the President of the Central Bank of Brazil on 19th February stated that policy makers can adjust monetary policy to reassure investors that it will not hesitate before increasing interest rates for containing inflation.