The real climbed to a one-week high after Moody’s Investors Service said Brazil’s economic growth would have to be much lower than 2 percent before the nation’s credit rating outlook is lowered again.
The currency appreciated 0.3 percent to 2.3724 per U.S. dollar at the close in Sao Paulo, the strongest since Dec. 31. Swap rates on contracts maturing in January 2016 fell eight basis points, or 0.08 percentage point, to 11.62 percent.
Moody’s analyst Mauro Leos said yesterday in a telephone interview that a change in Brazil’s outlook to negative is more likely this year than a reduction in its credit grade if economic growth is “much weaker” than expected. The ratings company changed the outlook to stable from positive in October on the Baa2 rating, which is two levels above junk.
“We understand from the Moody’s comments that there won’t be a rating downgrade this year, which was already priced in by the market,” Paulo Petrassi, a fixed-income manager at Leme Investimentos, said in a telephone interview from Florianopolis, Brazil. “It shouldn’t come until 2015.”
The real pared its gain today after O Estado de S. Paulo cited Standard & Poor’s managing director Joydeep Mukherji as saying that there is a possibility Brazil’s credit rating will be cut before the October elections.
S&P lowered the outlook last year to negative from stable on its BBB credit rating for Brazil, which is equivalent to the Moody’s grade. S&P didn’t immediately respond today to a request for comment from Bloomberg News.
Brazil’s economy will expand 1.95 percent in this year, according to the median forecast of about 100 economists in a central bank survey published yesterday, down from a 2 percent projection a week earlier.
The real fell 13 percent in 2013 on concern fiscal deterioration will lead to a lower credit rating and amid speculation that the tapering of Federal Reserve stimulus will sink demand for the nation’s assets. The annual drop in the currency is the biggest since the financial crisis in 2008.
Brazil sold $199 million of foreign-exchange swaps today under a program announced Dec. 18 to auction $200 million each trading day until at least June 30 to support the currency and limit import price increases.
Petroleo Brasileiro SA, the state-controlled oil company, sold $5.1 billion of debt denominated in euros and pounds today in its first bond sale since Moody’s cut its credit rating three months ago to Baa1, the third-lowest investment grade.