Real Gains against USD after Last Week’s Poor Show

The major currency of Brazil, Real has seen advancement (It is at its highest price in the last 5 months) as the policy makers of this Latin American country have acted after the currency got hit hard last week to mark a 3-year low. Last week, a report was released signaling slower than forecast economic growth for the country in the 3rd quarter and that attributed to the Real hitting a big time low.

In two auctions completed today, the Central Bank of Brazil went ahead to sell 41800 currency swap contracts. The total worth of these contracts was $2.1 billion. Real is currently priced at 2.1164 per USD. The currency has seen a surge of 0.9% today. On the other hand, the swap rates of Brazil due in January, 2014 have plummeted by 3 basis points. The rate is currently at 7.18%.

According to the Emerging Market strategist for Credit Suisse Group AG, Bernd Berg, as the GDP outlook has been weak, Real had to withstand huge pressure. Bernd added that the policy makers won’t let Real depreciate fast and will do whatever they can to prevent the same.
A survey done on over 100 analysts from all over the world, the Brazilian economy will grow at a rate of 1.27% in 2012. The growth rate is expected to increase to 3.70% next year, according to the same survey. A similar survey was done previous week as well and that predicted 1.50% growth in 2012 and 3.94% growth in 2013.

The GDP of Brazil grew by 0.9% in this year’s 3rd quarter when compared to the similar time period in 2011. This is less than the predicted growth of 1.9% for 3rd quarter of 2012. Eduardo Suarez, who works as a Senior Currency Strategist for Scotiabank, stated that the Central Bank of Brazil is trying hard to keep the Real at somewhere between 2.05 and 2.15 per USD. To ensure that, if required, Central Bank may opt for currency swap offers again.

The target lending rate of Brazil was kept at 7.25%, a record low figure last week. That snapped the streak of 10 continuous reductions as the policy makers tried to stoke some growth in the Brazilian economy. The Government has also decided to boost spending and cut taxes so that the economy can be propped up.