(Adds comments from other sources, context)
By Alonso Soto and Luciana Otoni
BRASILIA, March 13 (Reuters) - Brazilian authorities will not bow to market pressure to increase support for the real despite the currency’s sharp sell-off on Friday, four government sources told Reuters.
The real weakened nearly 4 percent on Friday, hitting 3.28 per dollar, its weakest level since April 2003, due a surge of the dollar abroad and amid growing political uncertainty stemming from a corruption scandal at state-run oil company Petrobras.
Many investors expected President Dilma Rousseff to step up intervention beyond the central bank’s daily sale of currency swaps - derivatives that provide investors with protection against currency losses.
But officials told Reuters Brazil will not use its international reserves to halt the real’s depreciation, which could ultimately help its exports at a time when the economy is contracting.
“It would be useless to intervene,” said an official who asked not to be named to speak freely. “This is a global trend. The dollar is stronger everywhere.”
The real has weakened 13 percent in March, making it the worst performer among 152 currencies tracked by Reuters.
The decision not to step into the market signals a major policy shift for Rousseff, who during her first term in office increased intervention initially to weaken an overly appreciated real and later to halt it plunge.
Friday’s sharp depreciation of the real was also explained by investors’ seeking a new currency level needed to correct Brazil’s economic imbalances, a finance ministry source said.
The official said the market was testing the government and Friday’s currency overshoot was not the result of capital flight, which would merit direct intervention.
Both the finance ministry and central bank declined to comment for this story.
The central bank’s currency swap program is due to expire on March 31. The bank has not said if it will continue with the program that started in 2013, but has slowed roll-over pace of swaps.
The government believes the negative impact a weaker real would have on inflation will be offset later this year by its fiscal and monetary tightening, a senior lawmaker who was briefed by members of Rousseff’s economic team told Reuters.
“The government is willing to pay the price of higher inflation in the short term because it is confident prices will start to subside in the third quarter,” said the lawmaker from Rousseff’s Workers’ Party.
A weaker real makes imports more expensive, raising price pressures when inflation surged to 10-year highs in February. (Reporting by Luciana Otoni; Writing Alonso Soto; Editing by Chizu Nomiyama, Andrew Hay and Diane Craft)