Brazilian Real Gains as Central Bank Buys Reais, Sells Swaps

By Adriana Brasileiro

Oct. 27 (Bloomberg) -- Brazil's real strengthened on expectations central bank efforts to shore up the currency will mitigate investor aversion to higher-yielding assets.

The real rose 1 percent to 2.2830 per dollar at 9:52 a.m. New York time compared with 2.3075 on Oct. 24. Brazil's currency has plunged almost 32 percent from a nine-year high on Aug. 1.

Banco Central do Brasil will offer as many as 30,000 currency swap contracts at an auction today. The bank also bought $1.25 billion worth of reais today with an agreement to re-sell them at a future date.

``The central bank moves are tempering some of the speculative impetus of investors betting against the real,'' said Jorge Knauer, manager of the foreign-exchange trading desk at Rio de Janeiro-based Banco Prosper SA. ``But the market has no parameters, so this improvement in sentiment will probably be short-lived.''

The bank will continue to draw on its $204.9 billion of international reserves to sell dollars in the spot market, Knauer said.

Yields on Brazil's local-currency bonds and rate future contracts fell on growing bets the central bank will halt six months of interest-rate increases as the global credit crisis slows economic growth in Latin America's biggest economy.

The central bank will keep the benchmark overnight rate at 13.75 percent at its Oct. 28-29 meeting, according to 24 of 41 economists surveyed by Bloomberg. The other economists expect the central bank to raise the rate for a fifth straight time since April.

Economists in a weekly central bank survey see the central bank raising the benchmark rate to 14 percent this week, compared with last week's forecast for a half-point increase to 14.25 percent. The survey, taken on Oct. 24, included about 100 economists and was published today.

The yield on Brazil's overnight futures contract for January 2009 delivery dropped 39 basis points to 14.02 percent.

The yield on Brazil's zero-coupon bond due in January 2010 fell 17 basis points to 16.81 percent, according to Banco Votorantim.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net