UPDATE 1-Brazil real jumps 2 pct on $60 bln intervention plan
By Walter Brandimarte
SAO PAULO Aug 23 (Reuters) - Brazil's real rallied more than 1 percent early on Friday after the central bank unveiled a currency intervention program that will provide $60 billion worth of cash and currency hedges to the foreign exchange market by year end.
The plan, announced after markets closed on Thursday, was seen by analysts as a bold central bank move to give credibility to its currency intervention policy, which had failed to stop the real from slumping to near five-year lows in the past few days.
The measure is likely to curb the extreme volatility recently seen in Brazil's foreign exchange market, allowing the real to trade more in line with peer currencies. Still, analysts say it is unlikely to revert the currency's depreciation trend, which is related to a global portfolio reallocation caused by an expected withdrawal of U.S. stimulus measures.
"The measure should help contain excessive bearishness around the real and even bring it back to the 2.35-2.40 range," Barclays' strategists Marcelo Salomon and Guilhermo Loureiro write in a research note.
The real last traded at 2.3940 per dollar, 1.4 percent stronger for the day, after gaining to as much as 2.3801 earlier.
Interest rate futures dropped sharply, with the contract maturing at January 2017 falling 19 basis points to 11.68 percent, as the outlook for a more stable real over the next few months eased concerns about inflation stemming from more expensive imported goods.
While most emerging market currencies have been affected by a jump in U.S. Treasuries yields, Brazil has been specially hard-hit as its slow-growing economy has fallen out of favor with investors.
Through its new intervention program, the central bank will sell, on Mondays through Thursdays, $500 million a day worth of currency swaps, derivative contracts designed to provide investors with hedge against a weaker real.
On Fridays, the central bank will offer $1 billion on the spot market through repurchase agreements.
The program "represents one of the boldest attempts yet by an emerging market central bank to shore up its currency following the rout of recent weeks," Neil Shearing, chief emerging markets economist with Capital Economics in London, wrote in a note to clients.
"It's worth noting that history suggests FX intervention tends to smooth currency adjustment, rather than prevent the adjustment from happening altogether," he added.
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