Real Declines as Brazil’s GDP Outlook Cut, Spain’s Yields Soar

The real fell for the first time in three days after Spanish bond yields rose to a record following Greece’s election and analysts in a Brazilian central bank survey lowered their forecasts for economic growth.

The currency depreciated 0.4 percent to 2.0590 per U.S. dollar. Yields on the Brazilian interest-rate futures contract due in January 2014 fell for the eighth time in nine days, retreating four basis points, or 0.04 percentage point, to 8.05 percent.

“There was a slight improvement with the Greek election, but the situation continues to be uncertain,” Luis Otavio de Souza Leal, chief economist at Banco ABC Brasil SA, said in a phone interview from Sao Paulo. “The focus is back on Spain.”

Brazil’s gross domestic product will expand 2.3 percent in 2012, compared with a forecast of 2.53 percent a week earlier, according to the median estimate in a central bank survey of about 100 analysts published today. The economy expanded 2.7 percent last year.

Mexico will grow 3.72 percent this year, according to a central bank survey of 29 economists released June 1. The economists raised forecasts for a fifth straight month.

Spanish 10-year bonds fell, pushing yields above 7 percent for the first time since the euro was introduced in 1999, as a jump in bad loans fueled concern the debt crisis is deepening. Greek bonds rallied after pro-bailout parties won enough seats to control parliament.

‘Permanent Uncertainty’

“The exchange rate depends on the foreign environment in which Europe is in a crisis that keeps dragging on, with permanent uncertainty,” Roberto Padovani, chief economist at Votorantim CTVM Ltda., said in a phone interview from Sao Paulo.

Brazil’s Finance minister Guido Mantega told reporters in Los Cabos, Mexico, today that Europe’s anti-crisis response has been insufficient and the largest emerging-market nations will announce their additional contribution to the International Monetary Fund at a Group of 20 meeting in Mexico.

Yields on Brazilian rate futures dropped after the central bank survey showed analysts expect policy makers to reduce borrowing costs to a record low 7.5 percent this year, a bigger cut than previously forecast.

“Projections for the Selic rate fell straight from 8 to 7.5 percent, without stopping at 7.75 percent,” Souza Leal said.

More modest growth will help slow inflation, the central bank survey showed. Consumer prices will rise 5 percent in 2012, compared with a week-earlier forecast of 5.03 percent.

Economic Growth

The seasonally adjusted economic activity index, a proxy for gross domestic product, rose 0.22 percent in April after contracting a revised 0.61 percent in the previous month, the central bank reported June 15. Analysts expected a 0.24 percent increase, according to the median estimate in a Bloomberg survey of 21 economists.

“Economic growth moved deeper below trend and continues to slow, reinforcing Brazil’s underperformance against the rest of the region,” Flavia Cattan-Naslausky, a local markets strategist at Royal Bank of Scotland Group Plc, said in a report today. “The real will continue to underperform.”

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