Brazil’s Real Falls on Speculation Government May Curb Gains - Bloomberg.com

Brazil’s Real Falls on Speculation Government May Curb Gains - Bloomberg.com
By Camila Fontana

Oct. 26 (Bloomberg) -- Brazil’s real slid for the first time in four days on speculation the government may take additional steps to curb the currency’s rally.

The real dropped 1 percent to 1.7350 per U.S. dollar at 3:08 p.m. New York time, from 1.7173 on Oct. 23. The decline cut the currency’s appreciation this year to 33 percent. Last week the government imposed a 2 percent tax on foreign purchases of stocks and fixed-income securities.

“The market is wondering what the government is going to do after we break the 1.7 barrier,” said Paulo Petrassi, manager of fixed income investments at Leme Investimentos. The government may increase the tax rate on foreign inflows, he said in a phone interview from Florianopolis.

A spokeswoman from the Finance Ministry in Brasilia who declined to give her name said new measures to contain the real’s gains are not off the table, but that no announcement is imminent.

Brazilian authorities will most likely use the country’s sovereign fund to buy dollars in an effort to stop the currency from climbing even further, said Antonio Madeira, chief economist at MCM Consultores Associados in Sao Paulo.

Fixed income manager Rafael Correia of GAP Asset Management said in a phone interview from Rio de Janeiro that if the Brazilian currency reaches 1.8 per dollar, it will be a good opportunity to buy reais again.

The real opened higher and reached 1.7020 in early trading. The proximity to 1.7 prompted many local investors to buy dollars to prevent losses, said Roberto Kropp, a director at Daycoval Asset Management in an interview from Sao Paulo. The central bank bought dollars in the spot market today for 1.7059 reais each.

In the overnight interest-rates futures market, the yield on the contract due January 2011 rose four basis points, or 0.04 percentage point, to 10.28 percent, according to Bloomberg data.

To contact the reporter responsible for this story: Camila Fontana at cfontana@bloomberg.net
Last Updated: October 26, 2009 15:24 EDT"