Real heads for fourth weekly advance

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BrazilReal Reuters. The new Brazilian 20 and 10 real bills are displayed at Brazil's Central Bank headquarters in Brasilia.

Sao Paulo - Brazil’s real headed for a fourth straight weekly gain on bets the central bank will control inflation by allowing the currency to advance as policy makers phase out increases in borrowing costs.

The real climbed 1.5 percent this week to 2.2039 per dollar as of 11:12 a.m. in Sao Paulo and was little changed today.

Swap rates on contracts maturing in January 2017 rose five basis points, or 0.05 percentage point, to 12.36 percent and rose one basis point for the week.

Policy makers said in minutes of the April central bank meeting published yesterday that the increase in interest rates has yet to work its way through the economy.

They signaled last week that they were preparing to end the world’s longest monetary tightening cycle amid slow economic growth.

“The bank will continue intervening to contain foreign exchange volatility in order to prevent a deterioration of inflation expectations in the middle of an electoral year,” HSBC analysts said in an e-mailed report today.

Annual inflation remains faster than the 4.5 percent official target after the central bank raised the benchmark lending rate by 3.75 percentage points over the past year.

The national statistics agency reported April 9 that consumer prices rose 6.15 percent in the 12 months through March, the fastest pace since July.

Food and beverage costs rose 1.92 percent from the prior month during the worst drought in a half-century.

Brazil’s central bank targets inflation of 2.5 to 6.5 percent.

Central bank President Alexandre Tombini told reporters in Washington yesterday that inflation will slow once temporary food inflation passes.

The central bank increased the target lending rate by a quarter-percentage point in April and February after raising it by 50 basis points at each of the six prior meetings.

The nine increases since April 2013, bringing the rate to 11 percent, are the most among 49 central banks tracked by Bloomberg.

The full impact of the yearlong monetary tightening has yet to be reflected in the inflation rate, the central bank said in minutes published yesterday.

“Given the impact of monetary policy on inflation is cumulative and happens with delays, the committee considers that a significant part of the response of prices to the current monetary tightening cycle will still materialise,” the central bank said. - Bloomberg News

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