Brazil’s real fell to a three-week low on speculation the central bank will sustain its policy of intervention to support exporters by weakening the currency.
The real also declined along with most emerging-market currencies as concern Greece will struggle to win further aid and tomorrow’s U.S. presidential election damped demand for emerging-market assets. Brazil swap rates decreased after economists reduced their estimates for borrowing costs at the end of next year.
“The markets abroad have a tendency of poor performance today, with investors pulling back on any doubts,” Ures Folchini, the head of fixed income at Banco WestLB do Brasil SA, said in a phone interview from Sao Paulo. “And the central bank has had success keeping the real weak, not letting it strengthen beyond 2 per dollar.”
The real depreciated 0.2 percent to 2.0352 per dollar, the lowest level on a closing basis since Oct. 15. Swap rates on contracts due in January 2014 fell two basis points, or 0.02 percentage point, to a record low 7.32 percent.
To weaken the real and protect exporters, Brazil’s central bank sold $1.4 billion of reverse currency swaps contracts on Oct. 25, $1.6 billion on Oct. 23, $1.3 billion on Oct. 5, $5.7 billion Sept. 12 through Sept. 17 and $350 million on Aug. 21. The August reverse swaps were the first since March.
Swap rates dropped after analysts in a central bank survey cut their forecasts for Brazil’s borrowing costs at the end of 2013. Brazil’s target lending rate, known as the Selic, will be 7.63 percent at the end of next year, according to the median estimate in a central bank survey of about 100 analysts published today. Analysts had forecast 7.75 percent in the previous week and 8 percent the week before that.
“The outlook fell in the central bank survey as the tendency is for the market to reduce its bets on rate increases in 2013,” Folchini said.
Brazil cut the target lending rate for a 10th straight meeting on Oct. 10 to a record low 7.25 percent, down from 12.5 percent in August 2011, to revive the slowest growth among major emerging-market economies.
Keeping interest rates stable for a “sufficiently prolonged” period is the best strategy to ensure inflation converges to the central bank’s target range of 4.5 percent, plus or minus 2 percentage points, the monetary authority said in the minutes of its Oct. 9-10 meeting.
The central bank will hold the rate steady until July, when it will begin raising borrowing costs with an increase of 25 basis points, trading in swap rates shows.
Economists in the central bank survey maintained their forecasts of 1.54 percent gross domestic product growth this year and 4 percent expansion in 2013. Inflation this year will be 5.44 percent, the analysts said, down from the previous week’s estimate of 5.45 percent. The economists held their inflation forecast for next year at 5.40 percent.
Brazil’s industrial output in September fell 1 percent from August, the first decline in four months. Consumer default rates in September matched the highest level since November 2009 as indebted consumers struggle to keep up with payments.
Carlos Hamilton, the central bank’s economic policy director, said in September that inflation is unlikely to converge to the midpoint of the bank’s target range until the third quarter of 2013.
The October FIPE consumer prices index from the Foundation Economics Research Institute in Sao Paulo rose 0.8 percent from the month before, compared with an increase of 0.55 percent in September. The median forecast of 19 analysts in a survey by Bloomberg was for an increase of 0.81 percent.