May 9 (Bloomberg) -- The real fell to its lowest level in almost three years as intensified political turmoil in Greece sapped demand for emerging-market assets including Brazilian stocks.
The currency has dropped 5.2 percent against the dollar in 2012, the worst performance among the 16 most-traded currencies, as central bank dollar purchases to weaken the real to aid exporters and interest-rate cuts have coincided with concern instability in Europe will further weigh on economic growth. Yields on interest-rate futures rose today after touching a record low this week as consumer prices climbed in April more than forecast.
Brazil’s currency depreciated 1.5 percent to 1.9699 per U.S. dollar at 6 p.m. in Sao Paulo after earlier touching 1.9717, the weakest level since July 2009. The yield on the rate futures contract due in January 2014 increased for a second day, rising 18 basis points, or 0.18 percentage point, to 8.56 percent after touching a record low 8.15 percent May 7.
“The real is clearly performing on the European headlines today,” Flavia Cattan-Naslausky, a local-markets strategist at Royal Bank of Scotland Group Plc, said by phone from Stamford, Connecticut. “And of course Brazil has been underperforming for a while on government intervention.”
The Bovespa index of equities fell to its lowest level since January as investors awaited a resolution to Greece’s political impasse. The euro weakened and Spanish default risk climbed to a record. U.S. stocks and precious metals declined.
Brazil’s consumer prices, as measured by the benchmark IPCA index, rose 0.64 percent in April, the biggest jump in a year, the government statistics agency reported today. The increase was more than the 0.59 percent median forecast of 47 analysts in a Bloomberg News survey. Annual inflation slowed to 5.10 percent from 5.24 percent.
The real has traded weaker than 1.90 per dollar after April 30 as the central bank bought $7.2 billion in the spot market from April 1 through April 27, the most since $8.4 billion purchased in March 2011. The currency last traded at 2 per dollar in July 2009.
“Depending on how things evolve abroad, the real could test the limit of 2 per dollar,” said Francisco Carvalho, currency director at Liquidez DTVM Ltda., in a phone interview from Sao Paulo.
The central bank has cut the target lending rate 3.5 percentage points since August, the most among the world’s 25 largest economies, according to data compiled by Bloomberg. Policy makers may reduce the benchmark to as low as 8 percent from 9 percent by the end of August, trading in interest-rate futures contracts shows.
Pressure From Rousseff
Borrowing costs including the benchmark rate may fall further in Brazil, Deputy Finance Minister Nelson Barbosa said yesterday. The federal banks made a sustainable move to cut lending rates and competition may lead private banks to follow, Barbosa told reporters in Brasilia.
The central bank will have to stop cutting rates at 8 percent this year because inflation “isn’t converging” toward the bank’s 4.5 percent target rate, according to Newton Rosa, chief economist at SulAmerica Investimentos.
“There’s a limit for rate cuts,” Rosa said in a phone interview from Sao Paulo. Annual inflation will reach as high as 5.3 percent by year-end, he said.
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