Brazil's Central Bank Forecasts $60 Billion Current Account Gap in 2011

Brazil’s current account gap will widen to a record $60 billion in 2011 from $49 billion in 2010, the central bank forecast today, as domestic demand and the real’s rally boost spending on imports and overseas travel.

The deficit in the current account, the broadest measure of trade and services, narrowed to $2.86 billion in August from a $4.5 billion deficit a month earlier, the central bank said today. Economists surveyed by Bloomberg expected a deficit of $2.5 billion according to the median of 19 economists surveyed by Bloomberg.

A $60 billion current account gap in 2011 is in line with analysts’ expectations and is unlikely to lead to currency weakness given that Brazil remains an attractive destination for foreign investment, said Zeina Latif, senior economist for Latin America at RBS Securities Inc. in Sao Paulo.

“It’s a flaw, but just that. I’m not seeing pressure for depreciation,” Latif said. “The currency’s behavior shows the markets are not concerned.”

High commodities prices will also continue to underpin the currency, Latif added. Commodities, according to the Reuters/Jefferies CRB Index, rose to a nine-month high yesterday and has gained 6 percent this month.

Brazil’s current account deficit is “not explosive,” Altamir Lopes, head of the bank’s economic department, said at a press conference in Brasilia.

Foreign direct investment decreased to $2.43 billion in August from $2.64 billion in July, the bank said.

Rising Real

The real appreciated 0.5 percent to 1.7244 per dollar at 1:08 p.m. New York time, from 1.7331 yesterday. In the overnight interest-rate futures market, the yield on the contract due January 2012, the most traded today on Sao Paulo’s BM&F exchange, rose three basis points, or 0.03 percentage point, to 11.540 percent.

Brazil’s government authorized its sovereign wealth fund to begin purchasing dollars as part of efforts to stem the real’s appreciation, the Finance Ministry said in an e-mailed statement yesterday.

Since President Luiz Inacio Lula da Silva took office in 2003, the real has more than doubled in value against the dollar, becoming the biggest gainer among the 17 most-traded currencies tracked by Bloomberg.

Brazil, along with China and India, have surpassed the U.S. as a preferred destination for investment over the next year, according to a September poll of 1,408 investors, analysts and traders who are Bloomberg subscribers.

Policy, Consumer Prices

Consumer prices as measured by the IPCA-15 index rose 0.31 percent in the month through mid-September, the national statistics agency said in a report distributed in Rio de Janeiro today. The index fell in July and August.

Policy makers on Sept. 1 kept the benchmark interest rate unchanged at 10.75 percent, after raising the Selic a total of two percentage points over their three previous meetings to prevent the economy from overheating.

Analysts forecast policy makers will resume raising in March, and will lift the Selic to 11.75 percent by June, according to the median forecast in a Sept. 17 central bank survey of about 100 economists published yesterday.

Analysts expect consumer prices to rise 4.95 percent in 2011, up from a week-earlier forecast of 4.90 percent, according to the survey.

Economists also raised their 2010 inflation forecast to 5.01 percent, from 4.97 percent a week earlier. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net

Andre Soliani in Brasilia at asoliani@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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