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Brazilian Real Declines to Four-Month Low, Extending Weekly Drop

Brazil’s real fell to its lowest level since June on speculation the central bank will maintain its intervention policy to weaken the currency and amid concern political disputes may threaten U.S. and European recoveries.

The currency slid 0.3 percent to 2.0462 per U.S. dollar at the close in Sao Paulo after touching 2.0658, the weakest intraday level since June 28. The currency extended its weekly decline to 0.7 percent, the steepest since July 6. Swap rates on contracts due in July 2014 rose two basis points, or 0.02 percentage point, to 7.62 percent.

“Investors are concerned with global growth,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio, said in a phone interview from Sao Paulo. “The market is seeking to hedge with the dollar and move away from other currencies in a classic risk-aversion move.”

Brazil’s central bank has sold reverse currency swaps to keep the real weaker than 2 per dollar to support exporters. It sold $1.4 billion of contracts Oct. 25, $1.6 billion Oct. 23, $1.3 billion Oct. 5, $5.7 billion Sept. 12 through Sept. 17 and $350 million Aug. 21. The August reverse swaps were the first since March.

The real dropped today along with most emerging-market currencies as global economic growth concern spurred demand for a refuge. Euro-area finance ministers may not make a decision on unlocking funds for Greece until late November as they await a report on the country’s compliance with bailout terms, a European Union official said. The U.S. risks entering a recession should policy makers fail to avoid the so-called fiscal cliff of automatic tax increases and spending cuts, Fitch Ratings said.

Target Rate

Brazil’s policy makers cut the target lending rate for a 10th straight meeting on Oct. 10, reducing it to a record low 7.25 percent to revive the slowest growth among major emerging-market economies.

The first preview of the Getulio Vargas Foundation’s IGP-M inflation index for November decreased 0.19 percent, compared with the median forecast of a 0.05 percent drop in a Bloomberg survey of economists. The gauge is made up of 60 percent producer prices, 30 percent consumer prices and 10 percent construction costs.

Keeping borrowing costs unchanged for a “prolonged time” is still the best strategy to ensure inflation will slow to its target of 4.5 percent next year, central bank President Alexandre Tombini said Nov. 7 in an interview.

Consumer prices as measured by the IPCA index rose 5.45 percent in October from a year earlier, the national statistics agency reported Nov. 7. The median forecast of 37 analysts surveyed by Bloomberg was for a 5.44 percent increase. Prices for food and beverages rose 1.36 percent in October, the fastest monthly pace since November 2010.

“There is the possibility for more activity and higher inflation this quarter,” Ronaldo Patah, the head of fixed income at Itau Asset Management in Sao Paulo, said in a telephone interview.

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