RIO DE JANEIRO: Brazil's real gained for a fourth consecutive session on Thursday while domestic interest rates plunged on signs that policy-makers became more concerned about the impact of a weak currency on inflation and investment.
Other key Latin American currencies also rose as investors' appetite for risk held steady on hopes for progress in US budget negotiations. The Mexican peso climbed 0.3 percent, while the Chilean peso rose 0.5 percent.
The Brazilian real gained 0.8 percent to 2.0785 per dollar as investors anticipated dollar inflows will pick up in the next few weeks as a result of recent government measures that facilitate foreign corporate borrowing and export financing.
The real has fallen nearly 2.5 percent this week since the government began dismantling capital control measures taken earlier this year, when the real was stronger than 1.8 per dollar.
The recent actions, combined with media reports saying policy-makers became more concerned about the outlook for inflation and private investment, signaled a reversal in Brazil's currency strategy, which for months consisted in weakening the real in order to support exporters.
"The government now wants a real stronger than 2.10 to curb inflation and to make room for additional interest-rate cuts," said a trader with a large Brazilian bank in Sao Paulo.
"I believe the recent weakness in the real did not stimulate exports as expected and, instead, had strong impact on inflation," the trader added.
Brazil's interest-rate futures fell sharply as a growing number of bank research departments - including those of Santander, Barclays and Itau BBA - started betting the central bank will resume its monetary easing cycle next year.
The interest-rate contract maturing in January 2014 fell 9 basis points to an all-time low of 6.91 percent, extending a series of declines that started last Friday, when government data showed Brazil's economy grew at half the pace expected by economists in the third quarter.
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