Brazil's Real Rises as Federal Reserve Seeks to Buoy Credit

By Adriana Brasileiro
March 11 (Bloomberg) -- Brazil's real rose for the first time in four days as the Federal Reserve announced new loans to try to bolster credit for U.S. homeowners and companies, increasing demand for higher-yielding emerging-market assets.
``The possibility of systemic risk is less likely now that major central banks are showing they are ready to deal with liquidity problems in the market,'' said Mario Cebrian, head of foreign exchange trading at Banco Standard de Investimento in Sao Paulo.
The real rose the most in seven weeks, advancing 1.4 percent to 1.6821 per dollar at 4:05 p.m. New York time, after most trading in Brazil had ended, from 1.7063 yesterday. The real's largest previous increase was 2.1 percent on Jan. 24.
The Fed said today it will lend as much as $200 billion of Treasuries in exchange for debt including private mortgage- backed securities that have slumped in value. The Fed also said it's boosting the amount available to European central banks through swap lines. Global stock markets rallied after the announcement, adding to demand for emerging market securities.
Brazil's currency has gained 24.7 percent over the past 12 months, the best performance among the most-active currencies tracked by Bloomberg. The real may strengthen to 1.6 per dollar within the next two weeks as risk appetite increases, said Alexandre Lintz, chief currency strategist at Banco BNP Paribas in Sao Paulo.
In an effort to slow the real's rally, which reduces exporters' margins as Brazilian goods become more expensive abroad, the government may allow exporters to keep more of their dollar-denominated earnings overseas, Finance Minister Guido Mantega said today in Brasilia.
Foreign Exchange Requirement
``It may even be possible that we end that foreign exchange requirement rule,'' Mantega told reporters. ``It is clear that the government is permanently worried about promoting exports and preventing excessive gains in the real. Our people are always assessing new measures.''
The regulation requiring exporters to repatriate at least 70 percent of their foreign revenue and keep that money at the central bank was instituted at a time when Brazil suffered from shortages of foreign exchange and capital flight.
Mantega denied a newspaper report today that said President Luiz Inacio Lula da Silva asked his economic aides to study measures to slow the currency's appreciation.
Currency Appreciation
Valor Economico said today the government was considering measures such as taxing foreign-exchange operations and charging foreign investors an income tax of 15 percent on purchases of local-currency bonds. Foreign investors have been exempt from that tax since February 2006. A spokesman for Lula declined to comment on the report.
Mantega said the government is not considering a package of measures.
``At this very moment, there is no package of measures to arrest the gain in the real being considered,'' the minister said.
Brazil's inflation slowed in February for a second month, reinforcing bets the central bank won't need to boost interest rates in the next several months. Consumer prices, as measured by the benchmark IPCA index, rose 0.49 percent last month after a 0.54 percent increase in January, the national statistics agency said today.
``Inflation is under control and shouldn't lead the central bank to increase rates this year,'' said Mauricio Oreng, senior economist at Itau Corretora, the brokerage unit of Banco Itau Holding Financeira SA, Brazil's largest bank by market value.
The central bank on March 5 held the benchmark interest rate unchanged for the fourth straight meeting.
The yield on Brazil's zero-coupon bonds due in January 2009 fell 3 basis points, or 0.03 percentage point, to 12.01 percent, according to Banco Votorantim SA.
-- With reporting by Guillermo Parra-Bernal in Brasilia. Editors: Dennis Fitzgerald, Michael Weiss