Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

By Filipe Pacheco

10:46 AM BRT
April 27, 2015

Brazil’s real rose for a fifth straight day amid speculation that the central bank will increase borrowing costs by another half-percentage point this week, making local assets more attractive to international investors.

The real gained 0.2 percent to 2.9441 per dollar at 10:07 a.m. in Sao Paulo, a seven-week high. The rally that began April 20 is the longest since June 2014.

Buying the real with borrowed dollars has returned 9.6 percent this month, the most among 16 major currencies tracked by Bloomberg. Traders project that the central bank will raise the target lending rate on April 29 by a half-percentage point for a fourth straight meeting.

“Policy makers will have to keep increasing the benchmark rate in order to control inflation,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview.

The real climbed 3 percent last week as concern eased that allegations of corruption at the state-controlled oil company would lead to a junk credit rating for the South American nation. Petroleo Brasileiro SA avoided an acceleration of its debt payments and opened the way for renewed access to financial markets when it published on April 22 its first audited results since August.

The risk of so-called carry trades in which investors buy higher-yielding currencies with money borrowed in countries with low interest rates is heightened as volatility threatens to wipe out profits.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was still the highest among 16 major currencies.

Swap rates, a gauge of expectations for Brazil’s borrowing costs, declined 0.09 percentage point to 13.33 percent on the contract maturing in January 2017. They increased 0.25 percentage point last week.