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Brazil Real Tumbles on Mantega Comment, Global Growth Concern

Brazil’s real fell the most in three weeks as the government warned it may take further steps to weaken the currency and concern mounted that global economic growth is slowing.

The real fell 0.9 percent to 1.8336 per U.S. dollar at 6 p.m. in Sao Paulo, from 1.8179 yesterday, the biggest decline since March 19. The yield on the Brazilian interest-rate futures contract due in January 2014 fell three basis points, or 0.03 percentage point, to 9.15 percent.

The real extended losses after Finance Minister Guido Mantega said during an event today in Sao Paulo that Brazil will keep taking steps to prevent its currency from strengthening against the dollar and hurting manufacturers. Slower imports in China and lower-than-forecast job growth in the U.S. fueled speculation global growth is flagging.

“Europe is not getting better and China is slowing down,” Reginaldo Galhardo, head of currency trading at Treviso Corretora de Cambio, said by phone from Sao Paulo. “Foreign investments in Brazil could become weaker.”

China, Brazil’s biggest trading partner, reported a trade surplus for March as import growth trailed forecasts. U.S. employers added 85,000 fewer jobs in March than economists projected, the Labor Department said April 6. Federal Reserve Chairman Ben S. Bernanke said in a speech yesterday that the U.S. economy is still “far from having fully recovered.”

Government Measures

Brazil’s real has traded weaker than the 1.80 level since mid-March, when the government expanded financial taxes to discourage capital inflows and protect Brazilian exporters from what President Dilma Rousseff called a “monetary tsunami” created by developed nations seeking to undervalue their currencies.

“One of our difficulties competing is the exchange rate,” Mantega said today in Sao Paulo. “If needed, we’ll take measures so there’s not an appreciation of the currency.”

Economists expect Brazil’s economy to grow 3.2 percent this year, following a 2.7 percent expansion last year and 7.5 percent in 2010, according to a weekly central bank survey of economists published yesterday.

Yields on most Brazilian interest-rate futures contracts declined as global growth concerns overshadowed comments by central bank President Alexandre Tombini that he will end interest-rate cuts when the benchmark reaches about 9 percent. Policy makers have reduced the Selic rate five times since August, bringing it to 9.75 percent.

Historical Low

Tombini repeated yesterday that policy makers will end cuts to the benchmark rate at a level “slightly above” the historical low of 8.75 percent. Tombini’s comments, in a Globo News television interview, quelled speculation the central bank could lower rates to as low as 8.75 percent after annual inflation in March was the slowest since 2010, said Luciano Rostagno, chief strategist at Banco West LB in Sao Paulo.

“Tombini’s comment was very clear,” Rostagno said by phone. “Even with positive inflation numbers, the data didn’t change the central bank’s mind.”

The yield on the interest-rate futures contract due in January 2014 tumbled 26 basis points last week, the biggest drop in a month, after data showed consumer prices as measured by the IPCA index rose 0.21 percent in March, less than the forecasts of all 50 economists surveyed by Bloomberg.

The annual inflation rate fell to 5.24 percent.

Brazil targets annual consumer price rises of 4.5 percent, plus or minus two percentage points.

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