Brazil Real Drops to 10-Year Low as Deeper Contraction Forecast
Brazil’s real declined to a decade low as analysts surveyed by the central bank projected a deeper contraction in Latin America’s largest economy.
The currency fell 0.3 percent to 2.8786 per dollar at the close of trade in Sao Paulo after earlier slipping to a level weaker than 2.9 per dollar for the first time since September 2004.
“Investors are sensitive to this increasingly grim economic picture as negative data keep piling up,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview.
Analysts forecast a 0.5 percent contraction in gross domestic product this year, according to the median of about 100 estimates in a weekly central bank survey published Monday. In the prior week, they saw the economy shrinking 0.42 percent. Concern that Greece’s fiscal turmoil and the potential for Federal Reserve interest-rate increases will damp demand for emerging-market assets also pushed the real lower.
Finance Minister Joaquim Levy said during an event in Sao Paulo that it’s time to create a basis for growth. While global currencies have been volatile, Brazil’s central bank has acted to limit fluctuations in the real, he said.
“The minister made clear how high volatility is at the moment, and that could eventually lead to an extension of the supporting program,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview.
Currency SwapsTo support the real and limit import price increases, Brazil sold the equivalent of $97.8 million of currency swaps Monday and rolled over contracts worth $630.6 million. The central bank plans to offer as much as $100 million a day until at least March 31.
One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among emerging-market currencies tracked by Bloomberg after the Russian ruble.
The real has lost 21 percent in the past six months, the most among 16 major currencies, on concern a stalled Brazilian economy and fiscal weakness will lead to a sovereign credit downgrade.
Swap rates, measuring expectations for changes in Brazil’s borrowing costs, fell 0.02 percentage point to 13.23 percent Monday on the contract maturing in January 2016.
To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net; Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net |
