November 23, 2012 / 9:16 PM / 5 years ago

EMERGING MARKETS-Brazil real jumps as central bank eclipses Mantega

* Real weakens to 2.11/dollar as Mantega says FX rate
    * Central bank calls swap auction, props real back to
    * Hopes of Greece deal support Mexican peso, which gains 0.6

    By Walter Brandimarte and Natalia Cacioli
    RIO DE JANEIRO, Nov 23 (Reuters) - The Brazilian real 
 on Friday posted its largest single-day gain in nearly
three months after the central bank acted to halt losses that
had taken the currency beyond the limits of an informal trading
    The Mexican peso also posted gains, buoyed by hopes
that Greece's lenders were nearing an agreement to release funds
to Athens, but the Chilean peso dropped after hitting a
one-month high in the previous session.
    Brazil's intervention in the currency market came as the
real quickly slid on comments by Finance Minister Guido Mantega,
who told a crowd of business leaders in Sao Paulo that the
exchange rate is at a "reasonable though not totally
satisfactory level" to support industry. 
    The apparent tug of war between Mantega and the central bank
left investors wondering whether policymakers still uphold an
informal trading band of 2.0-2.1 per dollar where the real has
been stuck since early July.
    "The government is worried about industry, as we can tell by
comments from several officials, but then comes the central bank
worried about inflation and you have this tug of war," said a
trader with a Brazilian bank.
    "We can't say, however, that the central bank is defending
the level of 2.1 per dollar. It only intervened today because
the real was weakening too sharply," he added.
    The real gained 0.8 percent to 2.0812 per dollar after the
central bank sold about half of the 62,800 traditional swaps it
offered in an auction. 
    Those contracts, which emulate the sale of dollars in the
futures market, were apparently auctioned in an attempt to
cancel some reverse currency swaps -- which mimic the purchase
of dollars -- expiring in the beginning of December. 
    "The central bank announced the swap auction almost at the
same time as Mantega said the exchange rate isn't totally
satisfactory," said Alvaro Bandeira, chief economist with Orama
in Rio de Janeiro. "The market is chaotic but so is the
    The central bank announced the intervention shortly after
the real slid more than 0.8 percent to an intraday low of 2.1168
per dollar -- its weakest in 3-1/2 years. 
    Hinting that some type of intervention was possible, central
bank chief Alexandre Tombini had already said on Thursday that
the bank was ready to provide liquidity to the foreign exchange
market at year-end, when dollars are traditionally more scarce
in Brazil.
    "Today's (early) losses in the real were out of control and
did not reflect the fundamentals," said Jankiel Santos, chief
economist at BES Investimento in Sao Paulo. "The central bank
wants to avoid market excess." 
    The real had been trading weaker than 2.1 per dollar since
the beginning of the session as small dollar outflows weighed on
a market with thin trading volumes after the Thanksgiving
holiday in the United States.
    The 2.0-2.1 reais per dollar range, informally imposed by
policymakers through a series of market interventions in the
past several months, was considered at the same time favorable
to Brazilian exporters and not too bad for inflation.
    But signs that the government would favor a weaker currency
to prop up the economy started to emerge early this week, when
President Dilma Rousseff said in an interview that the
government is "looking for an exchange rate that is not this
one, with a devalued dollar and an over-valued real."
    A weaker real could help Brazil's manufacturers, which have
struggled with an over-valued currency and high input costs. The
real has lost 10 percent this year, but remains more than 20
percent stronger than it was at the end of 2008.
    Mantega, who coined the expression "currency war" in 2010 to
complain about the strength of emerging market currencies,
indicated that the real is approaching the levels desired by the
government, although he made clear the currency still has some
room to weaken. 
    Latin America FX prices at 2045 GMT:
 Currencies                           Daily  YTD pct
                                        pct   change
                            Latest   change  
 Brazil real                2.0812     0.79   -10.22
 Mexico peso               12.9520     0.60     7.86
 Argentina peso*            6.4400    -0.47   -26.55
 Chile peso               478.6000    -0.40     8.50
 Colombia peso          1,823.7500    -0.45     6.29
 Peru sol                   2.5880    -0.04     4.21
 * Argentine peso's rate between                    
0 : 0
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