Brazil Real Tumbles Below 1.80 First Time in Month on GDP Growth Concerns

Brazil’s real sank below 1.8 per dollar for the first time in a month as sovereign debt concerns in the U.S. and Europe fueled speculation global growth will weaken, sapping demand for higher-yielding assets.

The real fell 1.1 percent to 1.8069 per dollar, from 1.7865 on Nov. 18. The currency earlier touched 1.8187 per dollar, the weakest level since Oct. 6.

The real tumbled as U.S. lawmakers failed to agree on budget cuts and Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter. Brazil’s government may reduce its forecast for economic growth this year to 3.5 percent after cutting its estimate to 3.8 percent on Nov. 18, O Estado de Sao Paulo reported, citing Deputy Finance Minister Nelson Barbosa.

“We have lots of bad news abroad weighing on stocks, interest rates and currencies,” Mauricio Junqueira, who helps oversee about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview. “Certainly the dollar is changing its range.”

The real will end the year at 1.7 per dollar and remain at the level throughout next year, Banco Bradesco SA’s chief economist Octavio de Barros said during an event in New York.

Yields on Brazil’s interest-rate futures contracts rose as speculation a weaker real will exacerbate inflation pressures overshadowed data showing economists lowered their 2012 inflation forecast for a fifth week.

Yields on the futures contract due in January 2013, the most actively-traded today in Sao Paulo, rose five basis points, or 0.05 percentage point, to 9.98 percent.

Economists covering Brazil cut their 2012 inflation prediction as economic growth slows more than analysts had forecast.

Risk Aversion

“The possible pass-through of a stronger dollar for inflation is pressuring the interest-rate curve,” Eduardo Galasini, the head of treasury at Banco Banif in Sao Paulo, said in a telephone interview. “The climate in the external market is one of risk aversion.”

Consumer prices will increase 5.55 percent next year, according to the median forecast in a Nov. 18 central bank survey of about 100 economists published today. That compares with an estimate of 5.56 percent the previous week. Prices, as measured by the IPCA index, will rise 6.48 percent this year, unchanged from last week’s forecast, the survey found.

Policy makers target inflation of 4.5 percent, plus or minus two percentage points. Inflation has exceeded the upper limit of the target range for the last seven months.

Brazil’s economy grew at its slowest pace in two years in September. Economic activity, a proxy for gross domestic product, expanded 1.17 percent in September from a year earlier. The increase was lower than the median forecast of 1.25 percent from 14 analysts surveyed by Bloomberg.

Brazil’s central bank will cut its key interest rate to as low as 9.5 percent by June to boost consumer spending as a global economic slowdown helps contain inflation, according to Banco Bradesco SA’s Fernando Honorato Barbosa.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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