Brazil’s real dropped to 2 per dollar for the first time since January on speculation government intervention in the economy to spur flagging growth is prompting investors to withdraw money from the country.
The real slid 0.5 percent to 2.0002 per dollar at 1:53 p.m. in Sao Paulo, the weakest level on a closing basis since Jan. 25. Swap rates on the contract due in January 2015 rose two basis points, or 0.02 percentage point, to 8.56 percent.
The level of 2 per dollar was last crossed in January, when the central bank intervened to strengthen the currency as inflation accelerated. Brazil had foreign currency outflows of $990 million in the week through March 15, the central bank reported yesterday.
“The flows are negative because Brazil has lost some appeal for foreign investors,” Sidnei Nehme, a director at NGO Corretora in Sao Paulo, which trades dollars with importers and exporters, said in a phone interview. “There are a lot of fund managers considering underweighting Brazil because of the inconsistency of monetary and fiscal policy.”
Investors are testing whether the central bank will intervene if the real falls further as traders pare bets on increased borrowing costs, according to Flavia Cattan-Naslausky, a markets strategist at Royal Bank of Scotland Group Plc.
“The underperformance of the real reflects the contradictory policies of the government,” she said in a phone interview from Stamford, Connecticut. “The probability of a Selic increase in April diminished. It’s more probable there will be an increase in May.”
Minutes of the central bank’s March 5-6 meeting indicated that an increase in the target lending rate from a record low 7.25 percent wasn’t imminent as policy makers said “a cautious management of monetary policy” was needed. The monetary policy committee will next meet April 16-17 and May 28-29.
The currency has lost 0.9 percent in the past five days, the worst performance among major currencies tracked by Bloomberg after South Africa’s rand and Norway’s krone. The real has pared its gain this year to 2.9 percent.
The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by preventing excessive gains. The real closed at a 10-month high of 1.9442 per dollar on March 8 before the central bank intervened on March 11 to weaken it.
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