Brazil’s real advanced as the central bank refrained from intervening to weaken the currency for the third straight session and amid speculation former bank chief Henrique Meirelles would become finance minister if President Dilma Rousseff is ousted.
The currency gained 0.4% to 3.51 per dollar in Sao Paulo, extending its gain this year to 13% as it climbed the most among 16 major currencies tracked by Bloomberg.
The real has gained every day this week as the central bank held off on selling reverse swaps that tend to weaken the currency. Beginning March 21, policy makers re-introduced a program created in 2005 to slow the real’s appreciation from curtailing Brazilian exports and have since sold $34 billion of reverse swap contracts, which are the equivalent of buying dollars in the futures market.
On Tuesday, Brazil’s Vice President Michel Temer told O Globo newspaper that Meirelles would become his finance chief if Rousseff is impeached.
“Meirelles is a good name, a name that markets will respond well to,” said Mike Moran, the head of economic research for the Americas at Standard Chartered Plc, which gets more than half its revenue from emerging markets. “The absence of more reverse swaps suggests the central bank is comfortable with the real in a 3.4-3.6 range for now.”
The real is the best performing currency among its most-traded counterparts this year and Brazil’s stocks are among the world’s biggest gainers on wagers that an impeachment would usher in a new government better able to pull the country out of its worst recession in a century.
One-month implied volatility rose 0.03 percentage point to 19.33%, the highest among the 16 most traded currencies. The cost of insuring Brazilian bonds in the credit-default swaps market for five years declined 5.4 basis points to 342.7 basis points.
Brazil’s central bank will hold the benchmark Selic rate at 14.25% for the seventh consecutive meeting on Wednesday, according to all 49 economists surveyed by Bloomberg.
Swap rates on the contract maturing in January 2017, a gauge of expectations for interest rates, increased 0.05 percentage point to 13.61%.
