Decision of Brazil’s Central Bank Chief to Stay Gives the Real a Boost

Real up, dollar downThe real, the Brazilian currency, rose to a three-week high as central bank President Henrique Meirelles’s decision to stay in his post bolstered investor confidence in the country. The Brazilian currency, the real, was trading in the range of 1.75/1.76 to the US dollar, its strongest level since March 12.

Henrique Meirelles, Brazil’s longest-serving central bank president, said on April first he is “totally dedicated” to curbing inflation after giving up offers to run for the Senate and governor of his home state of Goiás. The announcement ended nine months of speculation on whether Meirelles would step down to run in the October elections.

“We now know there won’t be a surprise in the central bank,” said Luiz Eduardo Portella, a bond and currency trader at Banco Modal. “With Meirelles giving up a political career, the market is calmer.”.\

Brazil’s central bank has held the overnight lending rate, known as Selic, at a record low of 8.75% since July. However interest-rate futures contracts point to an increase of at least 50 basis points, or 0.5 percentage point, at the bank’s April 28 meeting.

Meirelles’s decision “is an important sign that the basic directions of monetary policy will be maintained,” Silvio Campos Neto, chief economist at Banco Schahin SA, wrote in a note e-mailed to clients. “It is clear that the Selic will go up this month, and the question now is the magnitude” of the increase, he wrote.

The forecast was confirmed by a Central Bank survey of financial institutions released Monday, which indicates that 2010 and 2011 inflation could be above the bank’s target of 4.5% annually. According to the latest weekly survey, inflation in Brazil in 2010 could reach 5.18%

GDP growth estimate for 2010 stands at 5.5% and 4.5% for 2011, while the exchange rate at the end of 2010 is forecasted to reach 1.80 Reais to the US dollar and 1.90 at the end of 2011.

Mercopress

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