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Posted on April 7, 2011
Brazil’s real may strengthen beyond 1.60 per dollar “in the near term” after the government signaled it may accept currency gains that help control inflation, according to Barclays Capital.
The currency will likely trade at 1.50 to 1.60 per dollar, gaining from 1.6144 yesterday, Barclays wrote in a report to clients dated April 6. The bank previously forecast the currency would trade at 1.65 to 1.75 reais per dollar.
Finance Minister Guido Mantega yesterday told reporters that, while he can deploy an “array” of measures to curb gains in the real, the currency’s strength was “inevitable” to some extent because of the economy’s strength. He added that companies will have to pay a 6 percent tax starting today on foreign loans with maturities of up to two years, Mantega’s third attempt in two weeks to stem the currency rally that is hurting manufacturers.
“We are skeptical that these new measures will contain the recent trend of the real’s appreciation,” Guilherme Loureiro, a Sao Paulo-based economist at Barclays, wrote in the report. “Moreover, we believe the government is now willing to accept a stronger real to help fight inflation.”
Yields on Brazilian interest-rate futures contracts due in January climbed for a third day yesterday as investors raised bets higher borrowing costs will be needed to cool the fastest inflation in more than two years.
The so-called Selic rate will probably rise to 12.25 percent by yearend from 11.75 percent as inflation is expected to reach 6.02 percent, according to median estimates in an April 1 central bank survey of economists.
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