Reuters: US Dollar Report: EMERGING MARKETS-Brazil real rallies on move by central bank

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EMERGING MARKETS-Brazil real rallies on move by central bank Jan 28th 2013, 16:20 Mon Jan 28, 2013 11:20am EST * Central bank sells 37,000 traditional currency swaps * Brazil action seen as a sign of inflation concerns * Mexican peso weakens on fear of lower interest rates By Walter Brandimarte RIO DE JANEIRO, Jan 28 (Reuters) - The Brazilian real rallied over 1 percent on Monday, bucking losses in other Latin American foreign exchange markets, after the central bank signaled it would favor a stronger currency to fight inflation. Speculation that the government now wants a real around 2 per dollar, the latest in a series of changes of heart by Brazilian policymakers, grew after the central bank announced early on Monday that it was rolling over all of the 37,000 traditional currency swaps that expire on Feb. 1. Those contracts, which mimic the sale of dollars in the futures market, were originally sold by the bank to boost liquidity in the foreign exchange market at the end of the year, a period when greenbacks traditionally are scarcer. The swap rollover "is a good indication that the central bank is really becoming more tolerant to a stronger real, at least in the short term." said Flavia Cattan-Naslausky, a strategist with RBS Securities in Stamford, Connecticut. "I believe that is related to a deterioration in inflation." The real last traded at 2.0550 per dollar, 1.25 percent stronger from Friday's close. Investors could soon try to take the currency past 2 per dollar -- a mark it has not crossed since early July, when the government intervened to weaken the currency in order to boost exports. The swap rollover, announced when the real was already strengthening, is a sign that the central bank this time would allow the real to pierce the 2-per-dollar level as long as there are no sharp currency moves, said Cattan-Naslausky. Investors are betting the central bank will favor a stronger real at least in the first quarter of the year, when inflation pressures are traditionally higher in Brazil. Brazil's benchmark consumer inflation rate closed 2012 at 5.84 percent, well above the center of a government target of 4.5 percent, but still within a tolerance range of 2 percentage points. Prices continued to climb in the beginning of 2013 as items such as food and personal expenses rose. Other key Latin American currencies traded weaker to flat on Monday. The Mexican peso sold off for a second consecutive session as investors, fearing a possible interest rate cut by the country's central bank, reduced bets on a stronger currency on the Chicago exchange. The Chilean peso weakened 0.3 percent to 473.10 per dollar, pressured by fears that policymakers may intervene in the market to curb the currency's recent strength. Latin American FX prices at 1605 GMT: Currencies daily % YTD % change change Latest Brazil real 2.0055 1.25 1.72 Mexico peso 12.7790 -0.56 0.67 Chile peso 473.1000 -0.27 1.18 Colombia peso 1780.7300 -0.07 -0.83 Peru sol 2.5600 -0.08 -0.35 Argentina peso 4.9700 -0.05 -1.16 Argentina peso 7.5800 0.53 -10.55 Link this Share this Digg this Email Reprints

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