The Brazilian real fell, erasing gains as the central bank intervened to curb the rally of the currency. The real was rising previously as Finance Minister Guido Mantega hinted that the government will allow appreciation of the currency.
The Banco Central do Brasil (the Brazilian central bank) intervened to stem appreciation of the real, offering reverse foreign-exchange swaps for the first time since October. Previously, the currency had rallied as Mantega said that the government may allow the real to reach the 1.85 reals per dollar level. It looks like the Brazilian policy makers may tolerate appreciation of the currency, but a slow one, not a fast rally.
The real was also rallying on speculations that by reducing some taxes the government stimulated foreign inflows. It is not likely that the central bank will raise interest rates any time soon. Central bank President Alexandre Tombini said that annual inflation will not exceed the 6.5 percent upper limit of the central bankâs target range in the first half of 2013. On top of that, economic growth was the slowest in a decade.
USD/BRL rallied 0.3 percent to close at 1.9727 after falling 0.8 percent to 1.9511, the lowest intraday rate since May 11.
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